According to global investment bank Morgan Stanley, despite its 27-month low fall on Tuesday, the US Dollar has been declared the best safe-haven currency of the year. Effects of the Federal Reserve’s ongoing stimulus programs have weakened the currency, causing the stock indexes to be lifted to record-breaking highs on Tuesday coupled with a fall in its strength. These interventions have been imposed in response to the economic crisis caused by the pandemic, and are done to maintain liquidity.
The dollar, which functioned as a safe-haven investment amidst crises in the past, has fallen in strength against competitors like the Japanese yuan and Canadian dollar.
Since May 2018, the dollar index has been down to 0.55% at 92.308 from its earlier bottom of 92.124. Against the Japanese yen, it has hit a two-week low of 105.27 yen per dollar and a lower to 1.197 dollars against the euro.
Risk assets have been pushed to all-time highs, but the current picture for recovery of the U.S. economy is bleak. However, thee S&P 500 index has been driven to a record high that tops its earlier highest record in February 2019, which underlines the stock market and U.S. economic data disconnect. A recent rally in tech stocks has provided a positive backdrop for the markets, driving the index sky-high.
According to Morgan Stanley analysts, lower interest rates in the U.S. market implies that the dollar has become a more attractive source of funding for carrying trades.
As the coronavirus swept the country, the world’s reserve currency has benefitted from a flight-to-safety done early in the year, which caused the greenback’s rise to a three-and-a-half-year high in March. There is still a need to keep a “bearish skew” on the dollar as analysts expect risk sentiments to remain supported.
Morgan Stanley is the leading global investment bank that provides investment services such as banking, management services, securities, and even wealth management. They offer their products to individuals, corporations, financial institutions, and even governments.
Currency strategists warn that the longer the dollar remains in a stalemate in the capital, there will arise a greater danger of its selloff turning into a rout. A weakening currency is central to the carry trade as it translates to investors repaying less when cashing out of the trade.