Buck Returns as Safe Asset in Midst of Uncertainty


Buck Returns as Safe Asset in Midst of Uncertainty

AUGUST 21, 2020

The U.S. Dollar is closing the week in better ranges with a more cautious world and less optimistic sentiment when it comes to expecting a strong economic recovery and outlook.


A major downward swing had the buck reach its weakest point in over two years, but the dollar managed to erase this week’s early losses as a result of a return to risk-aversion as well as doubts over how quickly things can turn around, particularly in labor and productivity.

Naturally, this is translating into poor earnings and performance in basically anything that is not technology-oriented or based. While Chinese stocks ended sessions in the green, European and other Asian shares dwindled with investors questioning trade and the pace of success in the battle against COVID-19.

We are also seeing a combination of disappointing data and negative comments from experts about the fragile future ahead with all that we are coping with at one time. The glimpse into future investment that is the Purchasing Managers Index for the Euro-bloc came in with less expansion than estimated, which further sank the shared currency. Additionally, renowned economists such as Nouriel Roubini are warning that markets seem to be failing to price in the difficulties that will come with slower momentum as we try to close the year combating contagion and possibly a major second wave.

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After having reached its best level in almost two and a half years, the shared currency dropped by 1.5% in the last few days following a sudden loss of momentum for the continent’s economic engine. Euro fortunes have been rightfully tied to the economic success witnessed since the passing of the rescue fiscal package, but decision-makers are still facing some issues and not accelerating their expenditures as predicted.

Today’s release of the PMI composite revealed only a reading of 51.6 when 56.0 was expected for August, solidifying the fact that economic strengthening is going to take more than one good month.


The Pound also fell this week following a streak of bad news despite the fact that economic indicators are on the up. Retail Sales and Markit PMI all came in looking impressive, yet the narrative dominating Sterling guidance has to do more with the overall debt the country faces and the endless tale of Brexit.

U.K. debt topped one trillion for the first time ever as COVID-19 has tested the government’s coffins and new programs doing the opposite after years of austerity. Additionally, the Brexit talks this week ended with the EU’s Michel Barnier saying a trade deal prior to the end-of-year deadline is unlikely.