ANALYSIS – Dollar Eclipses Gold, Beats Yen in the Battle for Safe Asset

ANALYSIS – Dollar Eclipses Gold, Beats Yen in the Battle for Safe Asset

ANALYSIS - Dollar Eclipses Gold, Beats Yen in the Battle for Safe Asset

NEW YORK (Reuters) – Volatility in asset markets is contributing to the bouncing dollar rebound, highlighting the safe status of the US currency amid fears of overseas economic growth and domestic political struggles in the US.

The dollar rose almost 2% versus a basket of currencies in September as of Tuesday and could show a record monthly gain in 14 months, outstripping many other traditional directions for nervous investors during a turbulent period for equities.

Gold lost almost 4% in September, while the Japanese yen remained unchanged. The S&P 500 Index declined nearly 5% over the same period.

“The dollar's recovery … is due to the response of capital markets to the global wave of risk minimization,” said Thanos Bardas of Neuberger Berman.

At the same time, many of the factors that have made the dollar less attractive in recent months seem to be disappearing. COVID-19 cases in Europe are on the rise, threatening growth expectations that have propelled the euro up, and fears of a hard Brexit are weighing on the pound sterling.

In addition, talks about the possibility of imposing negative interest rates in the UK and Australia have reduced the attractiveness of these countries' currencies for some investors, despite the fact that such a step seems distant. In the United States, uncertainty surrounding the November 3 presidential election and the diminishing likelihood of lawmakers agreeing on additional fiscal stimulus measures this year are fueling demand for safe assets.

Neuberger is raising rates for the dollar to rally against the euro, which he believes is overvalued after a 10 percent rise since March, Bardas said.

Chester Ntonifor, currency strategist at BCA Research, said sharp surges in stock market volatility and turbulence in currency markets after long periods of calm trading are supporting the US currency.

(Gertrude Chavez-Dreyfus in New York. Translated by Alexey Kuzmin. Editor Marina Bobrova)

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