By Yasin Ebrahim
Investing.com – The U.S. dollar has continued to cede ground against its rivals, slipping to three-month lows on Tuesday, but it is unlikely to languish at lows for long as a slower-than-expected global economic recovery will see demand for the world's reserve currency return, experts say.
The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.32%, to 96.30.
The dollar looks set to strengthen on increased demand for safe havens in the months ahead as the pace of the global economic recovery is likely to fall short of expectations, Bank of America said.
Developed markets are unlikely to recover before 2022 at the earliest, and in the absence of a vaccine, the risk of a second wave of Covid-19 infections remains on the horizon amid easing lockdowns.
"Markets already appear to us priced for significant recovery and return to normalcy, which we would expect only in the case of a vaccine," BofA added. "We see a long road to recovery ahead, subject to avoidance of many downside risks, including that posed by sticky high unemployment and sectoral shifts impacting the corporate sector."
The slip in the dollar, which remains on course for a fourth-straight weekly decline, comes just a day ahead of the Federal Open Market Committee decision, which is expected to culminate in an unchanged rate decision.
The Fed is also expected to outline its projections on the economy, inflation and unemployment, all of which should serve as a reminder that the global economy's return to growth will be fraught with struggle.