Dollar recoups some losses as Covid-19 continues its spread
The USD has gained across the board today as the coronavirus continues to spread at an alarming rate.
Global cases have now exceeded the 1 million mark which is around double the number recorded last week. There’s now a general feeling that the economic recovery from the virus will take longer than initially anticipated, particularly given the exponential growth in cases in the key economic areas around the world over the past two weeks (such as the US and Europe).
The economic disruption is now beginning to appear in the fundamental data releases and it’s not looking pretty. Yesterday data showed that requests for job benefits in the US more than doubled in the past week to 6.6 million! This was worse than the darkest estimates and around ten times the previous peaks recorded in the early 1980’s and 2008/09 financial crisis. It’s the equivalent of around 6% of the entire US labour force losing their jobs in a fortnight. The US Dollar has gained ground in response to the figures and remains the currency of choice in times of trouble.
Services figures out of Europe and the UK this morning were abysmal and posted record low numbers. It’s clear that the Euro-zone is heading for a sharp recession in the coming months and the question analysts are trying to answer is how deep the contraction will be.
So far the spread of the virus hasn’t been as aggressive in the UK as some of its major peers in Europe, although it merely seems a matter of time before it catches up. Britain appears on a similar trajectory to Italy but with a 2-week lag or so. Should we see another sharp acceleration in UK cases in the coming few days then the pound could be in for a rough few days when trading opens for the week on Monday. Watch this space.
As a result, the GBP/USD has lost around 2-cents from yesterday’s high and trades back to Monday’s levels. The EUR/USD is down around 3.5cents from where we traded last Friday. The GBP/EUR has given up nearly a cent from this morning’s high but remains relatively buoyant.