Negative Rates Unlikely to Dethrone Dollar as World’s Top Currency, Experts Say

imageForex9 hours ago (May 14, 2020 02:37PM ET)

(C) Reuters.

By Yasin Ebrahim – The dollar rose on Thursday, shaking off falling U.S. bond yields, with Wall Street betting that the dollar is unlikely to lose its clout as the world’s reserve currency even if the Federal Reserve is eventually forced to cut rates below zero.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.21% to 100.46.

The dollar is unlikely to lose its dominant position as the world’s reserve currency if the Fed employed negative interest rates, as central banks rely on the dollar to ensure current account and financial account transactions in times of crisis, Commerzbank (DE:CBKG) said.

Talk of negative interest rates has persisted even as Fed Chairman Jerome Powell recently said further cuts to the central bank’s benchmark rate to below zero are unlikely.

The federal fund futures market continues to price in negative U.S. interest rates early next year.

The latest uptick in the dollar comes even as Treasury yields continue to slip, as fears about a protracted road to economic recovery were exacerbated by further evidence of pain in the labor market.

The U.S. Department of Labor reported Thursday that initial jobless claims were 2.981 million for the week ended May 9, above economists’ forecasts of 2.5 million.

The dollar’s move higher was also supported by a fall in the pound of and euro.

EUR/USD, which accounts for about half of the value of the dollar index, fell 0.31% $1.073, even as Germany, the economic powerhouse of the EU, reported better-than-expected inflation numbers.

GBP/USD fell 0.30% to $1.2193 as sentiment on cable remains negative after data earlier this week showed the U.K. economy contracted by a record 5.8% in March as the impact of the Covid-19 pandemic dealt a blow to growth.

Ongoing worries about U.K-EU trade talks have also weighed on cable as investors fret over whether the U.K. will agree to extend talks beyond the transition period with the June 30 deadline fast approaching.

Negative Rates Unlikely to Dethrone Dollar as World’s Top Currency, Experts Say

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