US dollar tumbles as global optimism rises
The US dollar declined sharply today as the market turned optimistic that the global economy is recovering. The US dollar rose sharply at the height of the pandemic in March. Now, as countries reopen, more investors are moving back to local currencies. The dollar index, which measures the strength of the USD against a basket of currencies, declined by more than 0.40%. The best-performing currency in the index was the British pound, which rose by more than 1.2%. The Japanese yen was unchanged even as the government ended the state of emergency. The US dollar also reacted to news of new vaccines that are being developed by Merck. Later today, it is likely to be impacted by consumer confidence data and new home sales data.
The British pound rose sharply after an official at the Bank of England (BoE) said that they were not close to implementing negative interest rates. In a statement, Andy Haldane, the bank’s chief economist said that the bank was reviewing negative rates “as a matter of principle.” The statement echoed what Governor Andrew Bailey said last week in his virtual testimony to parliament. He said that the bank was considering all options. At the same time, analysts polled by Bloomberg said that they expect the bank to leave rates unchanged and add quantitative easing in the June meeting.
Global stocks rose today as the market remained optimistic about countries opening up. They are optimistic about government stimulus packages and the reassurances by China about its bill regarding Hong Kong. In a statement yesterday, Chinese and Hong Kong officials said that the decision by China will bring more peace and stability to Hong Kong. That news led to a 2% gain of the Hang Seng index. In the United States, futures tied to the Dow Jones and the S&P500 rose by 2% and 1.82% respectively. In Europe, the DAX index, FTSE 100, and CAC rose by almost one per cent.
The EUR/USD pair rose to an intraday high of 1.0973 ahead of the EU Commission meeting that will happen tomorrow. On the four-hour chart, the price is above the 50-day and 100-day exponential moving averages while the RSI is slightly below the overbought level of 70. It is also a few pips above the 38.2% Fibonacci retracement. The pair may continue rising as bulls attempt to retest the resistance level of 1.1017.
The GBP/USD pair rose to an intraday high of 1.2340, which is slightly above the 50% Fibonacci retracement level. The price is slightly above the 50-day and 100-day exponential moving average. It is also above the yellow descending trendline and the Ichimoku cloud. While the upward trend may continue, the pound will be relatively volatile in the next few weeks as the market refocuses on Brexit.
The DAX index soared today in reaction to the $9.8 billion bailouts of Lufthansa by the German government. The index is trading at its highest level since March 6. On the four-hour chart, it is above the 100-day and 50-day exponential moving averages and above the 50% Fibonacci retracement level. It is also a few points below the 61.8% Fibonacci. Therefore, the index may remain in an upward trend as bulls stay in control.