The Dollar Index and the COVID-19 Effect
Thank you for viewing this Forex academy educational video. In this session, we will be looking at the U.S. dollar index and how it has been affected by the global pandemic.
The Dollar Index is also known by the following acronyms, the DXY, or DX, and USDX. The United States dollar is the single largest currency traded in the forex market. The U.S. dollar index is a weighted measurement of the value of the United States dollar against six other currencies, including the euro, the Japanese yen, Australian dollar, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc. The values of the dollar index or updated every few seconds during normal market trading activity.
If you like to trade any of these pairs, it is advisable that you keep an eye on the U.S. dollar index at all times.
This is a historical 6-month view of the dollar index, and although the pandemic was already starting to escalate in February, the disease was mostly effecting Europe and Asia, and after a move lower, the index climbed to a high of 103.00 just one month later due to its safe-haven status. However, this healthy level for the United States dollar has fallen off since that high to a low of 92.54 at the beginning of August.
This dollar fall has largely been due to the fact that Europe is seen to be recovering from the coronavirus and where governments such as the European Union and the British have been seen to be implementing monetary policies that will be good for the recovery for their respective economies. Also, Australia has handled the pandemic very well and where the infection rates have been quite low in that country.
On the flip side, we have the United States, which is systemically failing in coming to grips with the Corona outbreak, which has been escalated in many of the U.S. states.
While the federal reserve has been wildly applauded for their implementation of quantitative easing and handling of interest rates in reaction to the escalating economic fallout, President Donald Trump has been criticized for not taking the disease seriously enough, and many would say he has had his head in the buried in the sand hoping that it will go away and that much of his rhetoric surrounding that disease is tilted towards the upcoming presidential elections. This had caused the markets to wonder if America will actually get a grip on this horrendous disease, and this had caused market sentiment to shift away from the United States dollar in favor of the other major currencies, which have all pulled back from their lows when Europe was very badly hit back in March.
However, on Friday the 7th of August, the non-farm payroll reports took a little bit of heat of the DXY when it posted jobs growth of 1.76M in the United States for July, which went on to erase some of the concerns about the state of the United States labor market and this gave the dollar index a lift. In fact, it was up 0.6% at 93.40, a 3-day high. But this was still only bouncing off the loads of 7 weeks and straight declines.
While the boot has been firmly put into the U.S. Dollar in the last few months, it is important to remember that one month’s good U.S. jobs figures may not be enough to raise the U.S. dollar index back to its highs in March. The next biggest test will be whether or not the U.S. government can agree on a new pandemic relief package. So far, the democrats and republicans have been at each other’s throats and not being able to come to a successful conclusion on this matter with regard to how much relief is necessary. Watch this space. The outcome will affect the Dollar index.