The recent announcements on tax cuts and on infrastructure plans in the U.S. have also been interpreted as negative for the dollar, as the U.S. government is set to spend more and widen its fiscal deficit. The currencies of countries with account surpluses — where there is a positive difference between a nation’s savings and investments — are traditionally favored by investors than those with deficits.
“But another reason for the downtrend in the USD is that the weak USD and rising risk assets were feeding off one another. That virtuous circle went into reverse last week when equity markets tanked, but so far this week, risk assets have recovered and there are signs that the willingness to hold USDs is waning again,” Gallo added.
Global equity markets have been on the rise since Monday recovering from the steep losses seen last week.
Market players will be watching for new consumer price data due Wednesday in the U.S. If the number proves higher than analysts expect, the dollar could gain some ground during that session, as the prospect of the U.S. Federal Reserve tightening its policy at a faster pace would increase.