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“We expect the currency to be undermined by an ebbing of safe-haven flows, a reduction in the US rate advantage, and political uncertainty ahead of the November presidential election,” UBS analysts wrote last week.
The ICE US Dollar Index, which measures the dollar against a basket of six major rivals, plunged 4.2 percent in July – its biggest one-month decline since September 2010, data showed. The index was trading up on Tuesday at around 93.69, but data from the Commodity Futures Trading Commission showed that the dollar is well out of favor with speculative traders.
According to Steven Barrow, head of G-10 strategy at Standard Bank, the dollar’s weakness versus developed currencies comes at a time of heightened global uncertainty surrounding the Covid-19 pandemic. Usually, the dollar behaves “a bit better” against its developed-economy peers during a crisis, he said in a note seen by Market Watch.
The strategist worries that the combination of rising economic and political uncertainty amid the coronavirus pandemic and ahead of the November presidential election could pose a so-called “crash risk,” a danger more often associated with emerging-market currencies.
Barrow noted that the dollar has held up well versus emerging-market currencies, which means the risk may be mainly against other developed-world currencies, like the euro, Japanese yen and Swiss franc.
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