Forex - Dollar Gains on Covid-19 Fears

© Reuters.  © Reuters.

 The dollar has come back into favor in early European trade Thursday, with concerns about the mounting coronavirus cases and the impact on the economic recovery prompting a return to the safe haven.

At 3 AM ET (0700 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 97.293.

EUR/USD fell 0.1% to 1.1239, GBP/USD dropped 0.1% to 1.2410, while USD/JPY was up 0.1% at 107.15. 

Signs of a sharp uptick in the number of Covid-19 cases in many U.S. states have resulted in traders seeking the reassurance of the greenback amid concerns a second wave of infections could trigger fresh lockdown measures.

The states of New York, New Jersey, and Connecticut have already decided that visitors from states with high rates of infections will have to self-isolate for 14 days.

“It will now be crucial to keep an eye on the rising number of hospitalizations as this will likely determine whether new extensive lockdowns will have to be put in place and/or reopenings stalled further,” said analysts at Danske Bank, in a research note.

Eyes will also focus on the weekly unemployment numbers, at 8:30 AM ET (1230 GMT). Initial jobless claims for the week ending June 21 are expected to be 1.3 million, while continuing jobless claims are expected to fall to 19.9 million. These figures would represent progress, but unemployment is still at post World War II highs. 

Elsewhere, USD/CAD rose 0.1% to 1.3649, after Fitch downgraded Canada’s long-term foreign currency debt rating to AA+ from AAA, the first treble-A rated nation to lose this prestigious mark since the start of the Covid-19 outbreak.

The rating agency cited a bigger general government deficit this year, with Canada set to emerge from the recession with much higher public debt ratios given the spending needed to counteract a sharp fall in output in the wake of the virus.

Turkey’s central bank is scheduled to announce its latest interest rate decision later Thursday, and is widely expected to cut its one-week repo rate once more, to 8.0% from 8.25%.

Turkey’s key interest rate was at 24% almost a year ago following a currency crash, and the central bank has authorised nine straight rate decreases since.

USD/TRY traded at 6.8587, up 0.1%, some way off the all-time high of 7.27 reached in early May.

The Bank of Mexico is also expected to cut its key rate by another 50 basis points at its policy meeting later in the day.

Free demo account Open account