USD Enroute for Weekly Gain as Pandemic Recovery Becomes Sluggish

The dollar moved towards its most successful week of the month on Friday. This happened due to rising coronavirus cases and halted progress toward U.S. stimulus resulted in frightened investors looking for safe assets.

The Numbers

As new restrictions to control COVID-19 were rolled out in Europe and Britain, the world’s reserve currency moved up to a two-week high of 93.910 competing against a basket of currencies =USD. It maintained its position just below that peak in Asian morning trade.

London has introduced a rigid COVID-19 lockdown from midnight; along with this a curfew in Paris has resulted in two of the largest cities in Europe living under state-implemented restrictions.

The U.S. Midwest is also combating record increases in new cases as the temperature is getting colder, forcing authorities to set up a field hospital in the suburbs of Milwaukee, Wisconsin, in the scenario of an overflow of patients from hospital wards.

“Markets fear a slowdown in activity as new virus cases rise,” ANZ bank analysts Susan Kilsby and David Croy stated in a note.

“The deterioration is evident everywhere across Europe, which is a major blow to the recovery’s momentum and reinforces deflationary risks.”

Risk-sensitive currencies took the hardest blow, with the Australian dollar AUD= falling almost 1% on Thursday and registered a more than two-week low of $0.7057. It has lost 2% for the week, weighed also by a dovish central bank speech. [AUD/]

What do Strategists have to say?

On Thursday, the kiwi NZD= went down by 1% to $0.6577 and both Antipodeans registered a mark just above their troughs on Friday. The Norwegian krone NOK= is suffering a fall of 2.4% this week.

The euro EUR= dropped by 0.3% in comparison with the dollar overnight and so far has lost about 1% for the week. So far, the U.S. dollar has accumulated 0.8% against a variety of currencies this week, its largest weekly surge since late September.

Dollar demand pushed even the safe-haven yen down on Thursday, though the Japanese currency is increased by 0.2% for the week. The yen JPY= was last recorded steady at 105.38 per dollar.

The lockdown tensions propelling the selloff is a sign of hope for U.S. stimulus before the November 3 election fade and as data exhibits cracks surfacing in the recovery.

Weekly U.S. jobless claims increased to a level that was more than expected and hit a two-month high last week. It instigated concerns that the pandemic is causing lasting damage to the labor market. About 25 million Americans are on jobless benefits.

“The data is consistent with the idea that the spread of COVID-19 and removal of fiscal stimulus have seen a stalling of the economic recovery,” said NAB FX strategist Rodrigo Catril.

Brexit Deal Scenario

Meanwhile, stimulus plans are expunged in a three-way negotiation between the White House, Senate Republicans, and House Democrats.

On Thursday, President Donald Trump stated that he was willing to amplify his offer of $1.8 trillion for a COVID-19 relief deal; however, the idea was annulled by Republican Senate Majority Leader Mitch McConnell.

The sale of Sterling was substantially increased, as it dropped over 0.8% to $1.2891 on concerns about the hurdles restricting the European Union and Britain from getting to a Brexit trade deal. Sterling GBP= was last at $1.2902.

The European Union has blamed Britain to compromises its latest economic partnership or be ready for trade disruptions in less than 80 days.

Boris Johnson, the British Prime Minister is going to respond and set out his approach to the talks on Friday.