The dollar rises against major currencies and riskier emerging markets
The dollar snapped a week of declines on Monday, rising against major currencies and riskier emerging markets as investors braced for a prolonged period of uncertainty while governments tightened lockdowns to fight the coronavirus.
China’s offshore yuan fell after the Chinese central bank cut a key interbank interest rate.
The euro, sterling and Aussie dollar were all down between 0.5% and 1% in London trading, bringing an end to their recent rebounds that followed the Federal Reserve’s efforts to calm the scramble for the U.S. currency earlier this month.
Concerns about the spreading coronavirus and the economic impact of shutdowns continued to dominate foreign exchange markets, but price moves on Monday were relatively well-contained and much smaller than in recent sessions.
“I think you have to say that risk is still high,” said Adam Cole, a currencies strategist at RBC Capital Markets.
“The underlying newsflow out of China has been a lot better, in Italy it has improved … but that’s not the case in the UK and certainly not the case in the U.S.”
He said markets needed to see “broader evidence of a peak in infections” before calm returned and otherwise risked more “brutal selloffs periodically”.
The dollar index rose as much as 0.5% to 98.85.
Analysts said investors’ end-of-month portfolio rebalancing as well as nervousness about the virus was also supporting the greenback.
The euro dropped 0.6% to $1.1077, while sterling weakened as much as 1% to $1.2318 before rebounding somewhat.
Over the past two weeks the dollar first posted its biggest weekly rise since the 2008 financial crisis and then its biggest weekly drop since 2009. Signs of funding stress have eased but not abated as hard cash remains in high demand.
“Risk aversion has been more important to the direction of the dollar than traditional interest rate differentials,” Standard Chartered analysts said in a note. “For the dollar to surrender some of its recent gains, investors would need to shift their preferences back to a broader basket of safe-haven assets.”
The safe-haven Japanese yen was steady at 108.02 yen per dollar.
Both the dollar and yen rose against emerging market currencies after a weekend which brought more bad news on the virus front.
Total deaths are around 34,000 and the United States has emerged as the latest epicentre, with more than 141,000 confirmed cases and 2,400 deaths.
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the pandemic could ultimately kill between 100,000 and 200,000 people in the United States, if mitigation was not successful.
The dollar gained 0.3% versus the offshore Chinese yuan to 7.1082 after the People’s Bank of China unexpectedly cut a key interbank interest rate, the seven-day reverse repurchase rate, by 20 basis points.
The Australian dollar dropped sharply before recovering to trade down 0.3% at $0.6148.
Elsewhere, the oil-exposed Norwegian crown fell heavily along with declining oil prices and the South African rand crumbled to a record low after Moody’s cut South Africa’s credit rating.