Dollar to dominate majors through pandemic: analysts
The safe-haven dollar will remain to dominate currency markets for three more months amid economic risks brought by the coronavirus pandemic.
As the global economy nears a standstill, traders refrained from investing in risky currencies. While most majors suffered losses, the dollar has risen 3.5% this year.
However, the dollar could lose its dominant position without a change in risk assessment. In a few more months, investors will likely turn to developed market currencies that are low risk.
While major currencies are forecasted to gain on the dollar in the next 12 months, these expected gains will not compensate for the losses they suffered.
The euro is expected to recover its 3.5% loss this year and gain 2.0% in 12 months, trading at 1.14 against the dollar.
Even if the dollar is forecasted to trade in positive territory, its rally could subside once the economic and financial disruption wears off.
Currency economist Lee Hardman of MUFG said that despite the dollar’s strong position in recent years, conditions may change after the pandemic. He added that in 12 months’ time, the new normal would be different compared to the economic state before the crisis. This was evident in U.S. yields that remain on the floor and yield differential that has evaporated.