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Dollar on the up as pessimism sinks in

Chris Lee

Pessimism appeared to be the name of the game in the foreign exchange markets on Wednesday after a series of concerns about world politics appeared.

Part of the concerns focused on a new dispute between China and India relating to fighting at their border.

The two nations both went public on Wednesday with statements that an avoidance of conflict was what they wanted.

However, they also continued to levy accusations at one another, leading to fears over the potential for the problem to escalate.

There is also still a lot of concern around the world about the coronavirus pandemic.

More than five states in the US reported that their coronavirus infections were now at their highest points since records began.

Some of these states were among the country’s most significant and populous, such as Texas.

The Chinese capital city of Beijing has also experienced some problems, leading to the imposition of a new partial lockdown there.

As a result of these developments, the dollar appeared to gain ground over the course of the day.

The dollar index, which tracks the currency’s performance compared to some others from around the world, was up by a fifth of a percentage point at one stage.

It was spotted at 97.14.

This was a far cry from its performance in recent weeks, when it saw dips in the face of a shift towards riskier currencies.

The rise came despite a suggestion from the leader of the country’s central bank that there would be no economic recovery on the cards for the US until the country’s people had some fresh certainty over how the illness would play out there.

Jerome Powell, the chair of the Federal Reserve, made the comments earlier this week.

Elsewhere around the world, the single European currency was spotted at $1.1238 against the US dollar.

This represented a dip of 0.2%.

Meanwhile, traders at City Index and other major brokers around the world saw the pound manage to hold roughly firm at close to $1.2566 in the GBP/USD pair.

It came after concerns about the state of the Brexit trade negotiations in the country, which threaten to hang over it at least until the apparent deadline set for the end of the year.

The foreign exchange markets could be moved by a number of key events coming up on Thursday.

Thursday will see a decision from the Bank of England regarding interest rates, with the consensus so far being that the bank will at least implement some form of further bond-buying programme.

The decision, which will come from the Monetary Policy Committee, could also involve a reduction (or a hint of a reduction) in interest rates – potentially into negative territory.

However, traders will need to wait and see what the outcome is when it is announced at 11am GMT on Thursday.

Following that, there will be initial and continuing jobless claims releases from the US at 12:30pm GMT, giving some insight into the performance of the country’s labour market.

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Chris Lee
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