New US virus cases rise to fresh record high
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1 July 2020
Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.
The US dollar fell across the board on Tuesday, although losses were capped by ongoing concerns surrounding the pace of COVID-19 infections around the world.
As we enter into the third quarter of the year, the latest virus infection numbers will remain at the forefront of investors minds. So far, this sharp move higher in new US cases has not yet translated into an increase in deaths and can, at least in part, be attributed to higher levels of testing. As long as this remains the case, we may continue to see risk assets eke out some gains. If not, then the recent move higher in the dollar may have a bit further to run.
Figure 1: US New Daily COVID-19 Reported Cases (March ‘20 – June ‘20)
Source: Refinitiv Datastream Date: 01/07/2020
Investors brace for latest US nonfarm payrolls report
Focus among currency traders this week will turn to economic data, namely this Thursday’s US nonfarm payrolls report. As we highlighted in this week’s FX Talk podcast, uncertainty surrounding the data is higher than ever, particularly after May’s report completely wrong-footed investors, showing a 2.5 million increase in net jobs versus the 7.5 million contraction pencilled in. We think that another solid month of job gains is likely, with the ongoing re-opening of the US economy likely to be creating jobs at a faster rate than those being made unemployed. In the meantime, investors will be looking towards this afternoon’s ADP employment change number for any clues as to the strength of tomorrow’s NFP report, albeit its usefulness has been rather limited of late.
The small matter of the June FOMC meeting minutes will also be released this evening. We don’t expect too much new information from what was announced during last month’s press conference, although it may note that policymakers are considering implementing yield curve control in order to artificially suppress interest rates.
Sterling leaps higher on month-end re-balancing
Among one of the best performers yesterday was sterling, which rallied by over one percent versus the US dollar and is now back trading around the 1.24 level at the time of writing. The only news that we did have out of the UK on Tuesday was a downward revision to the Q1 GDP numbers. The move in sterling can therefore be attributed largely to month-end re-balancing, which tends to exacerbate moves in the currency markets.
With the second quarter of the year now behind us, investors will be hopeful that Q3 marks the beginning of a sharp uptick in UK economic activity. Revised PMI data out this week is expected to confirm that business owners are becoming much more optimistic about the outlook. As lockdown measures are lifted and employees return to their place of work we expect this uptrend in data to continue.
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