Dollar downed: Three reasons for the USD sell-off and why it cannot last

  • The US Dollar has been falling sharply, reversing previous gains.
  • Trade wars usually favor the safe-haven greenback, but this time is different. 
  • There are three main reasons for the downfall.

EUR/USD has escaped the abyss, GBP/USD seemed to have forgotten about Brexit, and even commodity currencies have rallied against the greenback.

The US dollar is a safe-haven currency, second only to the Japanese yen. US President Donald Trump has reopened the North American trade front by threatening Mexico with fresh tariffs as a punishment for allowing a migrant flow into the US. The trade war with China has also intensified with defiant rhetoric from Beijing and a threat to block rare earth exports to the US. 

Stock markets are plunging and the yen is on the rise. But the USD has suddenly turned around. 

What is going on?

1) Rate cut coming?

The deteriorating relations between the US and its peers have also sent investors to the safety of US bonds – sending yields lower. However, that has happened before the recent dollar downing. 

Bond markets have already begun pricing in a rate cut, but the greenback's fall was partially triggered by commercial banks that announced changes to their forecasts – bringing projections forward. And that was triggered by the trade war. JP Morgan has stood out with 

2) Profit-taking 

The US dollar may have gone too fast and too far and the end of the month is a perfect time to take profits – especially on a Friday. 

Retail traders and investors alike want to clean their positions before the weekend.

3) A downgrade in US consumer confidence

After GDP was downgraded on Thursday – and especially with the inflation component suffering a negative revision – the University of Michigan's consumer confidence also dropped. 

While it is not a top-tier figure, it has the privilege of having the last word of the week. A small downgrade was enough to add fuel to the fire.

Why it will not last

The greenback's status as a safe-haven has not changed. When the US economy sneezes, the rest of the world catches a cold. And that is when money flows back to the US. There has been no fundamental shift.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD recaptures 1.08 as coronavirus fears weigh on market mood

EUR/USD has recaptured 1.08 as US bond yields retreat in reaction to growing fears about the coronavirus outbreak economic impact. Earlier, the pair plunged amid weak German data.


GBP/USD bounces above 1.30 as markets shrug off wage figures

GBP/USD is trading above 1.30 as investors ignore weak UK wage figures and Brexit concerns once again. Coronavirus headlines are eyed.


Altcoins push hard not waiting for a Bitcoin reaction

The Altcoin market has only needed one business day to see prices rise sharply again. Bitcoin, still, has adopted the anchor function and for the moment is giving up the battle for the $10000.

Read more

Gold firmer, near $1,600/oz on coronavirus fears

Renewed fears around the Chinese coronavirus (COVID-19) have been supporting the demand for the safe haven metal in past hours, taking the ounce troy to levels just shy of the key $1,600 mark.

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors