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As Bearish Echo on Dollar Builds, Wells Fargo Says Next Move Likely No Move

Published 05-08-2020, 12:39 am
Updated 05-08-2020, 12:43 am
© Reuters.
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By Yasin Ebrahim

Investing.com –The U.S. dollar drifted lower on Tuesday, as the debate on the greenback's next move rages on, with Wells Fargo (NYSE:WFC) claiming the dollar is more likely to settle into a trading range than mount a material move in either direction.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.24% to 93.28

With the dollar on a six-week losing streak, the bearish chorus on the greenback continues to gather steam, but Wells Fargo believes the greenback is more likely to find its footing as demand will continue.

"The dollar is likely to settle into a trading range closer to where it is today – without material appreciation or depreciation in the near term," Wells Fargo said, though did acknowledge medium-terms risk ahead.

The sizable U.S. government deficit, the possibility of higher corporate taxes, and elevated levels of national debt are negatively impacting the dollar, the bank said.

Others, however, have adopted a bearish outlook and warned of further doom and gloom ahead for the greenback.

"(T)he roots of the USD depreciation cycle now in train lie in the sharp compression in previously USD-favouring yield differentials …  On this basis alone, there should be much more to come by way of USD weakness," National Australia bank said.

The greenback's sluggish start to the week comes just days ahead of the nonfarm payrolls report that many expect will confirm the recent slowdown in the economic recovery.

"We expect a 550k increase nonfarm payrolls, as the labor market recovery slows, and a divergence between manufacturer and non-manufacturer momentum during July," Nomura said. "US Economic Outlook: We expect a slower recovery phase as new COVID-19 cases surge and states move to restrict activity."

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