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Dollar slips toward 2020 low as history reminds traders not to sleep on FX around Thanksgiving

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The U.S. dollar did it again — falling to a multi-month low versus the euro on Wednesday, pushing a closely followed gauge of the U.S. currency’s strength against major rivals back toward its 2020 low and reinforcing one analyst’s reminder not to sleep on the currency market in the run-up to Thanksgiving.

The euro
EURUSD,
+0.21%

 was up 0.2% at $1.1922, pushing above the $1.19 level for the first time since early September, according to FactSet. The ICE U.S. Dollar Index
DXY,
-0.29%
,
a measure of the U.S. currency against a basket of six major rivals, was down 0.2% at 91.99, after trading as low as 91.93 — not far off the more-than-two-year low of 91.75 set on Sept. 1. The euro is the largest-weighted component of the DXY.

The euro’s pre-Thanksgiving move, while not huge in absolute terms, continued a pattern that’s seen major currencies score milestones versus the dollar around the holiday, noted Kathy Lien, managing director of FX strategy at BK Asset Management, in a note late Tuesday.

She recalled:

‘In 2019, USD/JPY hit a 6 month high the day before Thanksgiving while EUR/USD hit a 1 month low the day after Thanksgiving. There were no milestones in 2018, but in 2017 EUR/USD and GBP/USD hit a 1 month high Thanksgiving Day while USD/JPY fell to a 2 month low the day before Thanksgiving. In 2016, the EUR/USD dropped to an 11 month low the week of Thanksgiving while USD/JPY rose to a 7 month high. There was no meaningful movement in sterling that year. In 2015, EUR/USD and GBP/USD fell to a 7-month low the week of Thanksgiving as USD/JPY consolidated. In most cases, the trend that was in place immediately before the holidays continued.’

The dollar rallied as the pandemic ravaged the global economy earlier this year, triggering a global scramble for the U.S. currency that lifted the DXY to a more-than-three-year high in March. Actions by the Federal Reserve and other policy makers to relieve a global shortage and to ease monetary and fiscal policy then saw the dollar decline, with losses accelerating over the course of the year. Many analysts have argued the dollar is likely now in a longer-term downtrend.

The dollar has weakened in November as stocks rallied in response to positive news on COVID-19 vaccines and as uncertainty around the Nov. 3 presidential election passed. Losses on Friday followed data that showed a second consecutive week of rising jobless claims.

“Today’s unemployment claims data has fuelled concerns that a renewed economic downturn has begun thanks to the latest lockdowns. Many businesses have closed down during the pandemic for good and many jobs will never return,” said Fawad Razaqzada, analyst at Think Markets, in a note.

Doubts may be emerging about whether as sharp of a recovery as has been priced in by financial markets over the past several months will materialize.

“This should mean lower Fed interest rates for longer, keeping the pressure on the greenback,” he said.

The dollar remained lower Wednesday after minutes of the Fed’s last policy meeting earlier this month showed that most officials want to give clearer guidance to investors about the Fed’s massive bond-buying program, including what economic conditions would need to be met before the purchases cease.



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