- The US Dollar Index fell to its lowest level since May 2018 on Tuesday as investors grew more bearish toward the currency.
- The gauge has dropped for five days straight amid continued virus risk and fears of new stimulus arriving too late to best aid the economy.
- With short interest in the dollar booming and other countries better handling their outbreaks, the currency stands to fall further before regaining its strength.
- Watch the US Dollar Index update live here.
The greenback slid to a two-year low on Tuesday as investors grew increasingly concerned about how a stimulus deadlock could exacerbate the coronavirus’ economic scarring.
The US Dollar Index – which tracks the dollar’s value against a basket of other currencies – fell as much as 0.8% to its lowest since May 2018. The gauge has fallen for five days straight, bringing its year-to-date drop to around 4.2% as the US continues to grapple with the pandemic.
The dollar began its decline in March as the virus slammed the economy and forced widespread lockdowns. The drop worsened through the summer as premature reopenings kicked off a second wave of infections. With legislators failing to agree on new fiscal stimulus and outbreaks continuing to cripple economic activity, the US currency stands to worsen compared to nations containing the virus.
“Longer-term, we see dollar weakness as US debt grows, and the global recovery gains momentum. Near term, dollar may strengthen with uncertainty during flu season,” Eric Bright, managing director at Bel Air Investment Advisors, said.
Investors had already been hedging the dollar’s weakness and buying gold, but institutional players are now entering the trade. Hedge funds are net short on the dollar for the first time since May 2018, according to data compiled by Bloomberg. Such bearish activity could place greater downward pressure on the dollar if other nations rebound faster than the US.
The Dollar Index stood at 92.36 as of 11:50 p.m. ET Tuesday.
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