The weakest dollar in a decade in July. What will August be like?

If we assume that history repeats itself, August should be successful for the American currency. In July, the dollar index weakened by 4,1%. It is not only the third consecutive month when "green" lost to the basket of currencies, but also the largest monthly decline in the dollar index since September 2010.

Monthly changes in the dollar index (USD Index). Source: Reuters.com

Dollar in reverse

Where did this decline in the dollar come from, it skyrocketed the course in July EUR / USD from around 1,11 to 1,19? Several factors contributed to this. First of all, July was marked by improving moods in global markets, driven by faith in a stronger than initially assumed rebound in the global economy. This increased the risk appetite, preferring more risky assets to the dollar.

The dollar was also not helped by the expectations for further monetary easing by Fed. Including the occasional speculation about the introduction of negative interest rates in the future.

The dollar was overshadowed by strong increases in the number of people infected with the coronavirus in some regions of the US.

Finally, the protracted negotiations in the US Congress on the new fiscal package or the growing tension in US-China relations spoke against the dollar.

What's next? What will August be like? The above graphic shows that after the equally large depreciation of the dollar, there was a strong rebound in the following month. Yes, incl. was in 2015 and in 2016. Of course, there are also two exceptions to this rule. However, even then, in the next month, the dollar did not lose its value so much, and in the next month it rebounded with doubled strength.