Dollar gains, equities fall on coronavirus 2nd wave concerns, Fed outlook

The dollar is higher and global equities in red as investors switch to risk-off mode amid worries about 1) news of a second wave of coronavirus infections – infections grew in Texas, California and Florida, as the US count passed 2 million – and 2) yesterday’s dismal outlook by Fed Chair Powell. This morning’s US labor data showed a continuation of a gradual decline, but remain at elevated levels. Bond yields fell and credit spreads widened the most in nearly two months. Oil and gold prices are both lower.

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  • FX Rates
    June 11, 2020

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  • USD

    The dollar is higher in volatile trading, as investor sentiment uneasily moves from risk-on to risk-off. There was a poor reaction to Fed Chair Powell’s outlook of a long time for the US economy to recover from Covid-19. US Treasury yields dropped below 0.70% after reaching 0.93% last Friday. Credit risk is widening. In two days, high-grade spreads widened by 7 bps while high-yield (junk) spreads have widened by 38 bps. US Weekly Initial Jobless Claims for June 6 was 1,542,000, as expected and lower than the previous week’s 1,877,000; US State Continuing Claims for May 30 was 20.9M higher than expected and lower than the previous 21.5M.


    The UK pound fell hard from yesterday’s $1.2813, its highest level since March. Broad dollar strength was the result of Covid-19 concerns and the Fed’s dovish comments. Prime Minister Boris Johnson is struggling with a public split with his top scientific advisors after they warned that the government should rethink its coronavirus virus strategy after so many failed decisions during the crisis.   


    Broad dollar strength has led to the euro falling from yesterday’s three-month high at $1.1422. European finance ministers meet today to try to establish a common approach to the European Recovery Fund ahead of next week’s EU summit meeting.


    The USD/CAD currency pair climbed back above 1.35 on the broad rally in the US dollar, and after having fallen to multi-month lows yesterday at 1.3313. Lower oil prices also weighed on the currency.


    The USD/JPY is seeing sustained trading around 107, slightly lower than yesterday’s close amid safe-haven buying of the yen.

    The Hong Kong dollar continues to test the 7.75 bottom of its mandated 7.75-7.85 trading band. The Hong Kong Monetary Authority needed to intervene again to contain it.

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Scott Petruska, CFA
Scott Petruska, CFA

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