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03.08.202013:42 Forex Analysis & Reviews: COVID-19 destroys world's leading economy

The US dollar is falling again amid growing fears of a slowdown in the US economic recovery following the coronavirus pandemic.

Despite the high current account deficit, real interest rates in the US are falling. Minori Uchida, chief currency analyst at MUFG Bank, noted that there had not been such a situation in the US for a long time. In his opinion, the dollar will continue to drop.

US Treasury yields fell to their lowest level. At the same time, the 10-year bond yields dropped to nearly 0.50%, dampening the US dollar's attraction.

US bonds looked even less attractive taking into account inflationary expectations. Meanwhile, 10-year US treasury bonds, protected from inflation dropped to a record low – below minus 1%.

Increased unemployment benefits of $75 billion a month expired last week. Now, officials will have to strike a new deal to continue to support the world's largest economy. However, officials have not yet been able to reach an agreement. This is causing panic among investors about the future revival of the US economy. Besides, tensions between the United States and China are leading to concerns too.

Due to the coronavirus pandemic, many consumers and companies have suffered heavy losses. The US economy in the second quarter contracted to the level of the Great Depression. Moreover, a sharp rise in the number of COVID-19 cases is greatly slowing the recovery of the US economy.

US GDP fell by 32.9% in the second quarter. It is the largest decline since 1947.The last time a record drop in GDP was logged in the second quarter of 1958 and amounted to 10%.

The largest economic downturn was recorded in April, when economic activity in the country was frozen in order to avoid the spread of the Chinese virus.

According to economists, if the government did not support the economy, the consequences could be much worse.

Consumer spending in the second quarter fell by 34.6%, while corporate investment declined by 27%. America's exports collapsed by 64.1% and imports fell by 53.4%.

Amid falling GDP, American stock indices rushed down. Dow futures crashed by 1.15%, S&P 500 futures fell by 1.08% whereas Nasdaq 100 futures also dropped by 1.15%.

However, the US dollar Index remained unchanged against a basket of major currencies, holding at 93.46 points.

Kate Smirnova,
Analytical expert of InstaSpot
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