Dollar recovers some overnight losses; focus on U.S. coronavirus cases
The dollar reversed some of its overnight losses in early London trading with the rising number of coronavirus cases keeping the mood in check and fears of a second wave of the pandemic taking the shine off improving economic data.
The global death toll from COVID-19 reached half a million on Sunday, according to a Reuters tally. Cases surged in Southern and Western U.S. states, prompting California to order some bars to close in the first major rollback of efforts to reopen the economy.
Elsewhere, profits at China’s industrial firms rose for the first time in six months in May, suggesting the country’s economic recovery is gaining traction – but the news did little to support oil prices.
With little clear direction across the FX market, the safe-haven Japanese yen rose versus the dollar overnight before changing tack and riskier currencies also gained.
The Australian dollar was up 0.3% versus the U.S. dollar at 0.6884, even after the country reported its biggest one-day rise in new coronavirus infections in more than two months.
The New Zealand dollar also rose 0.3% versus the U.S. dollar, at 0.6683.
“The alarming spread of COVID could soon become evident in consumer confidence data,” wrote MUFG strategists Derek Halpenny and Lee Hardman in a note to clients, adding that the reimposition of restictions could start to impact consumer discretionary stocks and trigger a clearer risk-off move.
Against a basket of currencies, the dollar was at 97.303 at 0734 GMT, down -0.2% on the day and more than 1% this month, on track for its biggest monthly fall since December.
ING strategists told clients the dollar could be supported by month-end portfolio rebalancing on Tuesday.
“While a quiet data calendar today could see DXY drift down to the 96.80/97.00 area, we’d probably say much follow-through DXY selling beyond those levels looks unlikely,” they wrote.
The euro rose 0.3% to 1.125 versus the U.S. dollar ahead of eurozone confidence data due at 0900 GMT and German inflation figures at 1200 GMT.
French President Emmanuel Macron and German Chancellor Angela Merkel will meet on Monday to discuss the planned European Union coronavirus recovery fund.
Spanish Foreign Minister Arancha Gonzalez Laya said the EU is also expected to have a list of COVID-19-safe countries for travel purposes ready by Tuesday at the latest.
“We continue to expect a sustained recovery in the global economy, which should support our view for euro appreciation over the coming months,” Goldman Sachs FX strategists wrote in a note to clients.
“But at least at this stage we would not recommend EUR/USD longs for investors seeking risk-negative Dollar shorts – for which the Yen remains the best option, in our view,” they added.
The euro edged away from Friday’s one-month low of 1.0628 versus the Swiss franc, up 0.2% at 1.0659.
Traders were keeping an eye on further U.S. reaction to the national security law to be imposed on Hong Kong.