Sovereign debt downgrades and virus fallout help safe-haven dollar
The US dollar gained vs. most currencies including other safe-haven currencies such as the Japanese yen and Swiss franc after the UK saw it’s sovereign debt rating cut for the second time since the Brexit vote. Financial markets seemed to lose confidence over the weekend and the price of oil hit a 17-year low on very weak demand forecasts.
US Economic Data for the Week:
Monday: Pending home sales for February and Dallas Fed Manufacturing Survey
Tuesday: S&P/CoreLogic house price data for January, Conference Board Consumer Confidence for March
Wednesday: ADP Private Payroll data and ISM Manufacturing data for March
Thursday: Initial Jobless Claims (weekly), Durable Goods Orders for February
Friday: Non-Farm Payroll data and ISM Non-Manufacturing data for March
March 30, 2020
EUR/USD 1.1022 GBP/USD 1.2386 USD/CAD 1.4180 AUD/USD 0.6151 USD/JPY 108.0300 USD/CNH 7.1185 USD/ILS 3.5781 USD/MXN 24.2794 USD/CHF 0.9574 USD/INR 75.5900
The US dollar is gaining this morning after the UK was downgraded by Fitch credit rating agency leading to more risk-off sentiment and safe-haven buying. For much of last week the financial markets were optimistic as governments around the world took action to help relieve the economic impact of COVID-19. Over the weekend, several countries saw debt rating downgrades and the spike in fatalities reminded investors the worst is yet to come.GBP
The pound is only slightly weaker after last week’s 6% gain vs. the US dollar. Fitch cut the UK’s credit rating to AA- from AA, with negative outlook. This is the first cut in Fitch’s rating since the Brexit vote in 2016 (from AA+ to AA). Fitch cited the weakening of public finances caused by the impact of the COVID-19 outbreak, as well as uncertainty regarding the UK’s post-Brexit trade relationship with the EU. Prime Minister Boris Johnson tested positive for the coronavirus and continues to work in isolation.EUR
The euro weakened after 5 days of gains vs. the US dollar on poor economic sentiment data and concerns about sovereign debt rating downgrades European Council President Ursula von Der Leyen said the bloc was not “excluding any options” in its recovery package. The ECB told banks to refrain from paying dividends until October.CAD
The Canadian dollar weakened significantly this morning due to global oil prices sinking almost 10% overnight. West Texas Intermediate sank over 6% trading below $20/bbl early this morning. Demand for oil and gasoline products are sinking as the world’s population goes into isolation greatly reducing travel, and in turn, oil consumption.ASIA/PACIFIC
The Japanese yen gave up ground vs. the US dollar as some FX participants see Japan as running out of alternatives to support their economy.
The Chinese renminbi lost ground vs. the US dollar as Chinese authorities began cutting interest rates. Although China is a month ahead of most of the rest of the world when it comes to containing the coronavirus, many of the markets China’s manufacturers sell into are grinding to a halt.
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