Dollar Gains as Virus Hurts Euro and Pound

On Wednesday, the U.S. dollar bagged gains against major currencies such as the euro and the pound. The gains are supported by positive U.S. economic data and concerns about a second wave of coronavirus infections in Europe and Britain. 

The dollar is likely to continue to surge higher in the short term as lockdown measures are implemented in Europe due to the virus re-spreading, but uncertainty about this year’s U.S. presidential election means the dollar could be prone to more volatile swings. 

“Some people are betting for more dollar strength against the euro, which looks over overvalued,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo. 

“The picture in Europe has completely changed, because the economic recovery is stalling and there is a second wave of the virus, but I’m also worried about U.S politics.” 

The dollar was quoted at 0.9198 Swiss franc, holding into a 0.6% gain from Tuesday. 

The U.S. currency was little changed at 105.06 yen. 

On Tuesday, data showing U.S. home sales surged to their highest level in nearly 14 years in August, further bolstered the dollar but the Federal Reserve official sent mixed signals on their comments. 

The U.S. economy risks a longer, slower recovery and “recessionary dynamics” if Congress fails to pass an additional stimulus package, Chicago Federal Reserve President Charles Evans said on Tuesday. 

It is possible for the Fed to raise interest rates before inflation starts to average 2%, Evans also said. 

The dollar index, that tracks the dollar against a basket of six major currencies rose 0.4% on Tuesday to 93.975. 

Investor confidence in the euro was backed out due to the increasing worries of surging coronavirus infections in countries like France and Spain, raising the risk of lockdowns. 

Traders in the pound and the euro are also worried that Britain and the European union will fail to agree a free trade deal, which would cause additional economic strain. 

Technical Outlook

In the daily charts of GBP/USD, the pair opened at 1.2727 early morning in Asia session. 

Amidst the lockdown measures that are implemented to contain the virus once again, the sterling also fell against the dollar since Monday morning.  

Worries of possible failure of coming into terms with free trade deal with the EU also strained the sterling further pushing the price lower than the dollar. 

In the chart, we can see that the pair is already touching the 1.27129 support level. Speculations of the price breaking down from this level will further support the short positions of sterling bears. They are now eyeing out this position that would possibly break down from the support level in the coming days. 

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