The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
The pound appears to holding on to gains it made yesterday, with GBP/EUR climbing to €1.1078 and GBP/USD stable at $1.2202. GBP/CAD is buoyed at C$1.7164, while GBP/AUD and GBP/NZD hold steady at AU$2.0093 and NZ$2.0493 respectively.
Looking ahead, we expect markets to keep a close eye on coronavirus developments as widespread uncertainty weighs on sentiment.
What’s been happening?
The US dollar suffered a sharp sell-off during yesterday’s trading session as markets were stunned by an unprecedented rise in US initial jobless claims last week.
The US labour Department reported that claims for unemployment benefits surged by a whopping 3.2 million last week, absolutely dwarfing the previous record of 700,000 weekly claims and weighing heavily on USD exchange rates.
The massive increase came as Americans were hit by widespread layoffs due to the disruption caused by the coronavirus and stoked fears that the US is headed for a deep recession.
Francis Scotland, portfolio manager and co-director of global macro research at Brandywine Global suggests:
‘The U.S. is in a recession. The speed of the surge in unemployment claims reflects back on the ‘shelter in place’ and orders from various governments to reduce activity in order to limit the epidemic. In one sense, it is a government-mandated recession.’
This plunge in the US dollar proved to be a major boon for the pound, with GBP/USD catapulted back above $1.21 as Sterling continues to behave like a risk-sensitive currency.
Meanwhile, the euro edged higher on Thursday as it was supported by the continued fall of new cases of coronavirus infection in Italy.
What’s coming up?It’s safe to assume that markets will continue keeping a close eye on coronavirus developments through today’s session.
This could prove most negative for the US dollar as the US now wrestles with the world’s largest coronavirus outbreak.
On the other hand, the euro may continue creeping higher before the weekend if coronavirus headlines emerging from Europe point to a falling infection rate.
Finally, it remains to be seen if the pound will be able to consolidate its gains, with continued uncertainty over the situation in the UK as well as the possible vulnerability of its banking sector potential limiting any further upside in Sterling.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)