The US economic recovery has been delayed. It seems that it will not happen soon. This pushes investors away from the world's reserve currency. Traders speculate that the Federal Reserve would resort to another state of adaptive monetary policy change.
The stability of the US dollar is far from ideal. The American currency fell to a four-month low against the yen. Moreover, the greenback dropped to a new 22-month low against the euro and a five-year low against the Swiss franc. Gold, in turn, has reached historic highs amid a weakening US dollar.
The US central bank tries to stabilize the market hinting at the benefits of an average inflation target. Chris Weston, a head of research at Melbourne brokerage Pepperstone, noted that the US dollar was adapting to live with low market rates over a long period of time.
In other words, the Fed's rate is unlikely to grow in the next five years, as well as the value of the US dollar. However, investors are very optimistic as they open short positions ahead of the Fed's meeting. The number of such positions on the US dollar has reached a record 2-year high in a week.
The euro rose by 0.5% to trade at $1.1725. The pound sterling and the Singapore dollar reached highs of $1.2842 and $0.7134, respectively.
At the same time, the number of people infected with the Chinese virus in the world is only growing. Besides, political tensions between the countries are mounting. For example, China removed the American flag from the US consulate in Chengdu in response to the closure of the Chinese consulate in Houston. The revival of the global economy has also been delayed. The market froze in a nervous strain.
Moreover, the recovery in the US labor market has unexpectedly stalled, while Europe is recovering and moving forward. This is another cause of trouble. In this regard, the Fed's leaders will meet to discuss further actions.
The US government will analyze the timing of some US unemployment benefits extensions. The problem is that it is necessary to reach the unanimous agreement between Republicans and Democrats. The White House and Senate Republicans have agreed on a $1 trillion aid package, but approval from Democrats, who are pushing for the big spending, has not come yet.
Steve Englander, head of research on G10 FX at Standard Chartered in New York, argues that if additional fiscal measures are not taken, the market will have to go through severe shock. But the expert hopes for a large stimulus package from the US government.