10 July 2020
A surge in the number of new cases of the COVID-19 virus in the US kept low-risk assets well bid on Thursday, with the safe-haven US dollar, Japanese yen and Swiss franc leading the gains in the FX market.A total of more than 60,000 cases of the virus were reported in the US yesterday, the largest daily tally recorded thus far. An even greater cause for concern is that this jump in reported cases is now beginning to feed its way through to an increase in the death rate, debunking the theory that the rise in cases was merely a result of increased testing. The three-day moving average death count is now at its highest level in the country in almost a month, having earlier in the week fallen to pre-lockdown levels. Figure 1: US New Daily Reported Virus Cases (March ‘20 - July ‘20)
Source: Refinitiv Datastream Date: 10/07/2020It will be interesting to see how long this trend of rising US cases and dollar strength continues. At present, safe-haven flows into the dollar are overriding concerns stemming from the possibility of US lockdown measures being in place for a prolonged period of time. Should investors believe, however, that the shutdowns are beginning to materially damage the US economy, then we think we may start seeing a reversal in this trend. Slightly better-than-expected jobs data out of the US wasn’t enough to prevent the dollar falling back below the 1.13 mark versus the euro. US initial jobless claims fell more than predicted, coming in at 1.31 million. Yet, with many states reimposing lockdown measures, the idea of this number falling significantly in the coming weeks seems far fetched.
Source: Refinitiv Datastream Date: 10/07/2020It will be interesting to see how long this trend of rising US cases and dollar strength continues. At present, safe-haven flows into the dollar are overriding concerns stemming from the possibility of US lockdown measures being in place for a prolonged period of time. Should investors believe, however, that the shutdowns are beginning to materially damage the US economy, then we think we may start seeing a reversal in this trend. Slightly better-than-expected jobs data out of the US wasn’t enough to prevent the dollar falling back below the 1.13 mark versus the euro. US initial jobless claims fell more than predicted, coming in at 1.31 million. Yet, with many states reimposing lockdown measures, the idea of this number falling significantly in the coming weeks seems far fetched.Sterling eases despite UK budget announcement
The general risk off mode kept sterling on the back foot yesterday, with the UK currency trading back below the 1.26 level versus the greenback this morning. While the pound remains well supported by both the declining number of new cases of the virus in the UK and Chancellor Rishi Sunak’s budget announcement, the ongoing Brexit risks are preventing these gains from being more meaningful than they have been. Talks will continue between both the UK and EU in Brussels next week.Elsewhere, the best performing major currency yesterday was the New Zealand dollar. Unlike its neighbouring Australia, New Zealand is not experiencing a second wave of virus infections, with reported cases there essentially evaporated.
