USD dominance comes into question as pandemic chews away at the behemoth's economy

USD dominance comes into question as pandemic chews away at the behemoth's economy

No one expected that the year 2020, a new decade, would be off to such a harsh start for the entire world. The coronavirus pandemic that originated in China’s Hubei province has now spread all across the globe. The province’s capital city of Wuhan became the real global epicenters as it went under strict lockdown in efforts to contain the spread of the unknown virus. Unfortunately, the deadly infection still managed to escape the borders of Mainland China. First, it spread into other Asian nations, neighboring China, whilst later, it also reached the rest of the world.

The uncertainty and chaos have affected the US dollar as well. The leading currency in the world, that has been dominating the global economy for decades is now navigating through the turmoil. Representatives of regulated US Forex brokers are saying that the demand for their services has skyrocketed following the US dollar shifts. The people buying and selling the currency are not only Americans but also millions of people globally who have invested in the currency in an attempt to safeguard their assets. 

As of now, the novel coronavirus infection has killed more than 400 thousand people, a grim number that keeps going up. The total number of infections keeps growing on a daily basis as well. Unfortunately, there is no vaccine or effective medical treatment available yet. This makes the fight against this unprecedented pandemic particularly difficult, tricky, and expensive. With the scientists saying that the working vaccine is still 12 to 18 months away, the only available way of fighting against the novel virus is social distancing. 

Social distancing is a relatively new phenomenon, causing it to emerge to the highly contagious nature of the novel coronavirus infection. The reproduction rate is the number of transmissions an average infected individual is capable of. Usually, the number of different viruses are around 1. However, with coronavirus, the number stands at 3. This means that every infected person will transmit the disease to roughly 3 others, without any measures or regulations in place. 

The latter is why social distancing has become a crucial part of the fight against the deadly pandemic. People in practically all countries globally keep the physical distance of at least 2 meters, queueing up at shops carefully, not to contact or transmit the disease. For more than 2 months now, after the large-scale outbreaks of the virus in the United States, Canada, and Europe, the vast majority of nations have been under strict quarantine. In some nations, like Italy, people were not allowed to leave their homes at all, unless absolutely necessary. In others, travel on public transport was stopped, or limited to essential workers. This caused lots of economic problems, especially in severely affected countries. 

US Forex brokers and the economy suffer together

The biggest economy in the world, the United States, remains the most affected nation on earth. With the total number of coronavirus cases exceeding 2 million, particular parts of the nation had to go under lockdown. Unfortunately, the most affected areas are the leading economic hubs of the nation, particularly the state of New York. The latter is one of the biggest financial centers globally, hosting countless international firms, global institutions, and organizations. With such hubs coming to an absolute standstill, the economy of the United States has been severely affected. The early estimates from the International Monetary Fund suggest that the recession in the United States will be embodied in an unprecedented 5.9% economic fall this following year. 

The pandemic was followed by the Black Lives Matter riots as an innocent black man, George Floyd was brutally murdered in Minneapolis a few weeks ago. This sparked unprecedented protests all across the country, later followed by nations beyond the United States. The protests are also having a significant impact on the financial markets of the country. However, the potential damages are yet to be estimated, along with the updated projections of the coronavirus impact on the US economy. 

US FX companies predict a bump in USD dominance

Even during the very early stages of the pandemic, we witnessed how the federal government made irresponsible decisions, tricking the nation into the crisis. It is difficult to say whether what is happening now could have been avoided or not, but the fact is, that unlike many successful nations that curbed the spread of the virus, the United States did not manage to even slow it down. With over 120 thousand people already dead, the country’s coronavirus count does not seem to be ending. 

The financial markets are some of the most important factors in strengthening the US dollar and the country’s economy as a whole. Following the statement from President Trump, as well as healthcare experts from the United States and beyond, the markets responded immediately. As a result, key indexes like the S&P 500 experienced historically significant losses, falling from the record high to bear market overnight. 

Besides financial markets, the biggest contributor to the US economy, small and medium-sized businesses are also witnessing major losses. Countless small businesses, including cafes, restaurants, bars, bookshops, and others had to file their own bankruptcies, following over 2 months of lockdown. Thousands of crowdfunding events were organized to save some of the most iconic establishments from shutting down, but only very few of them managed to survive.

The vast majority of businesses that survived had to reduce the number of staff members. Consequently, millions of people employed in private sector lost their jobs, often only sources of income. As of late May, one in 4 Americans had already filed for unemployment benefits. This is the historic maximum of unemployment benefits claims in the country. Several local government representatives from different states had previously announced that their constituency would no longer be able to fund the soaring number of unemployment benefits. 

All of the aforementioned affects not only the economy and lives of people residing in the United States but also the currency that has kept itself as the global leader for a long time. The financial markets are recovering, but experts say, that this is a natural reaction of key indexes prior to the great recession. The markets are expected to fall again following the release of economic growth estimates. 

One other thing to consider is that despite the partial opening of the US economy, the number of coronavirus infection cases has not fallen at all. In fact, the United States is now experiencing yet another significant spike in the number of COVID cases. The healthcare system is just managing in many areas whilst small businesses are left alone, without customers to serve. Despite the opening of the economy, the majority of the US population restrain themselves from visiting public spaces, eateries or shops. That is why SMEs are struggling the most, losing their small share of customers in extremely competitive environments. 

It is difficult to be precise about what is coming for the US dollar or the country’s economy in the long term. However, we can most certainly say, that the global superpower will experience a harsh hit in the years to come. This is evident from the IMF’s preliminary report which has estimated that the US economy will fall by grim 5.9%. This data was released in April, right about when the restrictions were being imposed across the nation. Therefore, this number does not even include the impact of later events. Whether the estimate will fall further or not, the US dollar will surely get hit by the economic downfall and chaotic events happening across the nation. The effect might not be immediate, but the post-crisis situation will surely change the order that has been here for a long time. 

Author: Natalia Revishvili
About author: Natalia Revishvili is a professional financial content writer and editor with an extensive experience in technical analysis and the Forex market. Over the past few years, she has been successfully trading on Forex using the trends, support, resistance and technical formations. Now Natalia, apart from trading Forex for living and being technical analysts for financial websites, is a happy owner of two dogs traveling round the world.