Traders go short on U.S dollar over higher claims of U.S unemployment benefits

The U.S dollar plunged on Friday morning at London’s trading session. This downward trend was attributed to the unexpected rise in the number of Americans seeking unemployment benefits and a slight fall in U.S Treasury yields, weakened by investor sentiment on the safe-haven currency

The U.S. Dollar Index, which tracks the safe-haven currency against a basket of other currencies, was down at 0.13% to trade at 92.65 as at 5.28 am GMT.

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Why the U.S dollar dropped value

Data released by the U.S. on Thursday disclosed that 1.106 million Americans claimed unemployment benefits during the previous week, surpassing the projected 925,000 claims as well as last Thursday’s 971,000 figure.

Quick fact: The U.S. Dollar Index tracks the American dollar against other major currencies such as the Japanese yen, British pound sterling, Swedish Krona, the Euro, etc.

Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to European countries, and Japan, would need to pay more dollars in meeting such obligations.

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Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics explained why the U.S dollar is pulling back lately. He said;

“The EURUSD has been trading in a bit of a holding pattern for most of the US afternoon session between 1.1860-70. Indeed, the USD bears are still worried about what the Fed minutes omitted to say, which was to strike on overtly dovish Fed tone.

“Also, the direction of travel in COVID-19 case headlines continues to pose downside risks to EUR-USD. Part of the July bump in the EURUSD was based on the economic divergence faced by the US due to a COVID-19 surge.”

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Investors are widely expected to continue favouring the euro because the European Union (EU) recently reached an agreement on a COVID-19 recovery package for its members in late July.