Dollar Falls To 2.5 Year Low, 6 Things To Watch

The US dollar index plummeted to a 2.5 year low on Monday as investors worry about rising virus cases, fresh lockdowns, holiday spending, and the Federal Reserve. With US virus cases topping 4 million in November, in-store Black Friday sales fell 52%. Online spending was strong, rising 22% from the year prior but this increase and month-long promotions may not be enough to save retailers who have seen their 2020 earnings squeezed hard by the pandemic.

Softer US economic data contributed to the slide but this move has been months in the making. Shortly after the pandemic began, the greenback peaked and by late May it started a slide that took the Dollar index from 100 to under 92 today. Low-interest rates combined with a large budget and current account deficits made the dollar an increasingly unattractive investment. In the past week, the surge in virus cases and the response by governors to restrict social and business activity raised concerns about the extent of economic strain that Americans and their businesses endure before a vaccine is made available widely to turn things around.

While weaker manufacturing activity in the Chicago and Dallas regions combined with lower pending home sales contributed to the dollar’s slide today, investors are more worried about the rest of the week. Over the next few days, the Thanksgiving COVID-19 bump will become clearer – experts anticipate a big increase in cases from Tuesday to Friday. Federal Reserve Chairman Jerome Powell will also be testifying before Congress on the economy and monetary policy. There’s a good chance he’ll be cautious as the Beige Book which will be released on Wednesday will most likely show a slowdown in economic activity. The end of the year is nearing as well and investors will be more tempted to take profits after record-breaking moves in 2020 especially given recent uncertainties. It's no coincidence that the Dow Jones Industrial Average fell more than 300 points today. Further losses are likely this week and if the declines are significant enough, the dollar could sink even lower.

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