The U.S. dollar is experiencing a rare day of strength as global equities dropped and the safe-haven finally found some relief.
Overview
Concerns are rising that a second wave of coronavirus outbreaks could stall what some hoped would be a V-shaped recovery. A contrarian view is that both the dollar’s recent decline and the stunning rally in global stocks is overdone and due for a (possibly temporary) pullback. At the time of writing, Dow Futures show a massive 850 point drop at the open.
The dollar’s biggest gains came against the Mexican peso (2.4%), Australian dollar (1.3%) and Norwegian krone (1.0%).
Despite today’s dip in risk sentiment, markets will continue to get massive support from the Federal Reserve. Chairman Jerome Powell stated yesterday that current rates would stay at record lows through 2020. The doubling down on their dovish stance created a fresh reason to sell dollars yesterday.
Weekly jobless claims registered largely in line with expectations with an additional 1.54M Americans filing for unemployment protection last week. While the figure continues to be historically awful, the number has decreased for 10 straight weeks. Continuing claims ticked higher to nearly 21M.
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EUR
The Euro’s rally against the U.S. dollar from the past month has taken a breather overnight as more COVID-related fears crept into the market. We expected the common currency to rise versus the U.S. dollar but the move over the past month has surpassed our expectations in the short-term. EUR/USD has climbed five percent in the past month, but the rally may be starting to show some signs of fatigue. Look to general risk sentiment to drive the pair over the next few days as traders try to find a new, higher range in EUR/USD.
GBP
The British pound is set for its first daily decline in 11 days on broad dollar strength. Sterling has gained nearly 4% versus its American rival over the last ten trading sessions.
Politically, Prime Minister Boris Johnson is having a public brawl with his own top scientific advisers. While speaking on live television and standing next to the Prime Minister, Chief Medical Officer Chris Whitty spoke of a “long list” of potentially flawed decisions on the pandemic response. The spat comes amidst renewed worries over COVID and as the U.K. has one of the highest death counts in the world.
