Battered U.S. Dollar ‘Hanging by a Thread’ as Coronavirus Cases Grow
By Reuters. A steady decline in the dollar has accelerated in recent weeks, as a resurgent coronavirus outbreak in the United States and improving economic prospects abroad sour investors on the currency.
The buck is down 8% from its highs of the year against a basket of currencies =USD and stands near its lowest level since 2018. Net bets against the dollar in futures markets are approaching their highest level in more than two years.
“The dollar is hanging by a thread,” said Mazen Issa, senior currency strategist at TD Securities in New York. “At this point, the dollar-weakness mindset has become deeply entrenched.”
A range of factors are driving the U.S. currency’s decline. For years, expectations that the United States would outperform other economies kept the dollar elevated against many of its peers.
That performance gap is increasingly expected to narrow. European Union leaders earlier this week clinched a massive stimulus plan and have been largely successful in their efforts to contain the coronavirus. Meanwhile, outbreaks across large swaths of the United States have all but extinguished hopes of a quick economic turnaround there. (Read more from “Battered U.S. Dollar ‘Hanging by a Thread’ as Coronavirus Cases Grow” HERE)
Dollar Takes 9% Dive After Coronavirus Shutdowns, on Track for Worst Month Since 2011
By Washington Times. Even the greenback is looking a little green these days from the COVID-19 pandemic.
Battered by a global recession and investor fears that the U.S. economy may be facing an especially difficult time, the U.S. dollar has fallen 9% from its March high and is on track for its worst month in July since the summer of 2011.
By contrast, gold — long seen as a haven for investors in troubled times — has been setting price records in recent days. It reached a new closing high of $1,931 an ounce Monday on Wall Street. Given global uncertainties, gold could rise another $1,000 an ounce in the coming months, analysts at Bank of America Global research say.
The dollar is down about 3% for all of 2020 after rising in each of the past two years in lockstep with the U.S. economy. In the past three months, however, the dollar has fallen 5.1%.
“The dollar is very vulnerable now,” Boris Schlossberg, managing director of G-10 currency strategy at BK Asset Management, told the financial publication MarketWatch last week. (Read more from “Dollar Takes 9% Dive After Coronavirus Shutdowns, on Track for Worst Month Since 2011” HERE)
U.S. Is `Printing’ Money to Help Save the Economy From the COVID-19 Crisis, but Some Wonder How Far It Can Go
By USA Today. In its frantic scramble to save the American economy, the central bank of the United States seems to have the ultimate superpower.
It works like magic. With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually “printing” money and injecting it into the commercial banking system, much like an electronic deposit. By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities with these newly created dollars, one of many tools it is using to help prop up the ailing economy during the COVID-19 pandemic, according to Oxford Economics. . .
The Fed’s goal: to keep markets functioning after they had seized up in fear. The strategy also makes credit easier to obtain, with a bigger money supply and lower interest rates. Without these and the Fed’s other emergency measures, the economy would have crashed already, experts say. Fed Chair Jerome Powell said at a recent news conference that these purchases have helped market conditions improve “substantially” in recent weeks. . .
But an unstated, practical result of the Fed’s bond purchases is that it creates money to finance the gigantic debt run up by Congress. The very idea of it tends to explode the heads of those who say dollars should come from work, savings and investment instead of thin air. In the age of a nearly $25 trillion national debt, such “sound money” concepts seem outdated – relics of a bygone era in which the value of a dollar once was based on a fixed amount of gold.
“What we’re working with now is fake money, a fake measuring rod,” longtime Federal Reserve critic and former Republican presidential candidate Ron Paul told USA TODAY. “It is unbelievable.” (Read more from “U.S. Is `Printing’ Money to Help Save the Economy From the COVID-19 Crisis, but Some Wonder How Far It Can Go” HERE)
America’s Aggressive Use of Sanctions Endangers the Dollar’s Reign
By The Economist. Ever since the dollar cemented its role as the world’s dominant currency in the 1950s, it has been clear that America’s position as the sole financial superpower gives it extraordinary influence over other countries’ economic destinies. But it is only under President Donald Trump that America has used its powers routinely and to their full extent, by engaging in financial warfare. The results have been awe-inspiring and shocking. They have in turn prompted other countries to seek to break free of American financial hegemony.
In 2018 America’s Treasury put legal measures in place that prevented Rusal, a strategically important Russian aluminium firm, from freely accessing the dollar-based financial system—with devastating effect. Overnight it was unable to deal with many counterparties. Western clearing houses refused to settle its debt securities. The price of its bonds collapsed (the restrictions were later lifted). America now has over 30 active financial- and trade-sanctions programmes. On January 10th it announced measures that the treasury secretary, Steven Mnuchin, said would “cut off billions of dollars of support to the Iranian regime”. The State Department, meanwhile, said that Iraq could lose access to its government account at the Federal Reserve Bank of New York. That would restrict Iraq’s use of oil revenues, causing a cash crunch and flattening its economy. . .
The world’s financial rhythm is American: when interest rates move or risk appetite on Wall Street shifts, global markets respond. The world’s financial plumbing has Uncle Sam’s imprint on it, too. Most international transactions are ultimately cleared in dollars through New York by American “correspondent” banks. America has a tight grip on the main cross-border messaging system used by banks, swift, whose members ping each other 30m times a day. Another part of the us-centric network is chips, a clearing house that processes $1.5trn-worth of payments daily. America uses these systems to monitor activity. Denied access to this infrastructure, an organisation becomes isolated and, usually, financially crippled. Individuals and institutions across the planet are thus subject to American jurisdiction—and vulnerable to punishment. . .
Using the dollar to extend the reach of American law and policy fits Mr Trump’s “America first” credo. Other countries view it as an abuse of power. That includes adversaries such as China and Russia; Russia’s president, Vladimir Putin, talks of the dollar being used as a “political weapon”. And it includes allies, such as Britain and France, who worry that Mr Trump risks undermining America’s role as guarantor of orderliness in global commerce. It may eventually lead to the demise of America’s financial hegemony, as other countries seek to dethrone its mighty currency.
The new age of international monetary experimentation features the de-dollarisation of assets, trade workarounds using local currencies and swaps, and new bank-to-bank payment mechanisms and digital currencies. In June the Chinese and Russian presidents said they would expand settlement of bilateral trade in their own currencies. On the sidelines of a recent summit, leaders from Iran, Malaysia, Turkey and Qatar proposed using cryptocurrencies, national currencies, gold and barter for trade. Such activity marks an “inflection point”, says Tom Keatinge of rusi, a think-tank. Countries that used merely to gripe about America’s financial might are now pushing back. (Read more from “America’s Aggressive Use of Sanctions Endangers the Dollar’s Reign” HERE)
Gold Price Reached Almost $2,000 Today, Is $3,000 Next?
By Forbes. Gold prices are likely to continue their upward journey as investors know that the gold price has broken significant resistance. This resistance level, formed in 2011, reached an all-time high at $1921. As of today, the gold price is trading at $1943 and has reached as far as $1981. The gold price is up nearly 28% YTD. . .
Gold investors know that gold price has strong momentum. For them, the current rally is only the beginning. With a global dovish monetary policy and the central bank running their money printing machine at full pace, investors hope that the gold price will continue its rally until it touches $3,000 an ounce.
From the outset, this may seem bizarre, but with a loose monetary policy in place and a significant stock market crash hiding behind closed doors, the gold price will likely continue its run. . .
Moving away from the Federal Reserve, gold prices have been supported due to the rising geopolitical tensions between the U.S. and China. These tensions could continue to escalate if China doesn’t honor its phase-one trade agreement that hasn’t come in the spotlight yet.
China bought only 23% of the total purchase target of goods from the U.S. during the first half of this year. If Beijing doesn’t pick up it’s buying in the second half; the phase one trade deal agreement is likely to upset Donald Trump. (Read more from “Gold Price Reached Almost $2,000 Today, Is $3,000 Next?” HERE)