By Yasin Ebrahim
Investing.com – The dollar fell sharply on Monday as better-than-expected U.S. services data strengthened investor expectations for speedier economic recovery, but some on Wall Street expect the greenback to regain its footing.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.62% to 96.69.
The Institute for Supply Management’s (ISM Non-Manufacturing PMI) non-manufacturing purchasing managers’ index (PMI) jumped to 57.1 in June from 45.4 in May.
The quicker-than-expected pace of recovery in the U.S. service sector lifted hopes the economy will continue on the path of recovery despite the recent rise in Covid-19 cases nationwide.
"The service sector has definitely experienced a v-shaped rebound from the initial Covid-19 shock … We’re back at readings in February before the shutdowns," Scotiabank said. "July’s reading could easily be stronger as reopening momentum is imperfect, occurring in fits and starts across some states, but nevertheless ongoing both at home and abroad for exporters."
Still, the sharp rise in U.S. coronavirus cases means the current economic recovery may prove short-lived, triggering renewed demand for safe-haven assets such as the dollar, Bank of America (NYSE:BAC) said.
"The current recovery is as sharp as the collapse of output when the lockdown started, but this should not be a surprise for markets," BofA analysts said, pointing to recently improved economic data.
The bank expects the global economy to be "dealing with the consequences from the Covid-19 crisis for years to come," even if a coronavirus vaccine is developed.
The dollar's decline was also exacerbated by a strong climb in the euro.
EUR/USD rose 0.58% to $1.1313 as Germany, the economic powerhouse of the EU, reported that factory orders rebounded 10.4% in May, as the country reopened from lockdown.
GBP/USD, meanwhile, was flat at $1.2494 as traders continue to fret over the outcome of EU and UK trade post-Brexit trade talks which will continue in London this week.