U.S. Dollar Fails To Get Usual Safety Bid From Volatility In Short Term

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Most bouts of global market volatility in recent years have featured one constant: the U.S. dollar strengthens as investors clamor for the perceived safety of U.S. assets such as Treasuries.

By contrast, over the last two previous trading days, the dollar lost 4.0 percent against the yen, while dropping to a seven-month low versus the euro on Monday, as world stock markets slumped and emerging market currencies plummeted.

The dollar’s weakness may continue in the short term, but analysts expect its longer term rally to continue eventually.

The greenback is still seen as a refuge for those with the closest links to China such as companies and investors operating in Australian, Canadian, and New Zealand dollars as well as a slew of emerging market currencies.

In the short term, two factors may be pressuring the dollar against the euro and yen.

First, an accelerating economic slowdown in China and the resulting volatility in global markets have lowered expectations for a Federal Reserve interest rate rise in September, undermining the attractiveness of U.S. dollar assets.

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