FX Rate News

The U.S. dollar edged lower against the euro on Tuesday as the common currency added to Monday’s gains following news of a Franco-German proposal for a fund that would offer grants to European Union regions and sectors hit hardest by the coronavirus pandemic.

Encouraging results from the trial of a vaccine for COVID-19 reduced demand for safe havens and the greenback rose to a near one-month high against the Japanese yen..

Germany and France, whose agreements usually pave the way for broader EU deals, proposed that the European Commission borrow 500 billion euros ($550 billion) on behalf of the whole EU. The Commission is expected to outline their proposal before a European summit scheduled for May 27.

The euro was 0.25% higher against the greenback at $1.0942, on pace for a two-day gain of about 1 percent.

“The Franco-German proposal represents a material step forward towards harnessing joint fiscal capacity to provide sustained fiscal stimulus to support the economic recovery,” said Lee Hardman, currency analyst at MUFG.

The common currency was also supported by a survey showing German investor sentiment improved much more than expected in May as concerns eased about the impact of the coronavirus pandemic on Europe’s largest economy.

The greenback found little support from data showing U.S. homebuilding dropped by the most on record in April.

The U.S. currency, which draws safe-haven flows when risk appetite falls, has assumed a softer tone as investors took heart from encouraging early-stage data for a potential coronavirus vaccine.

“The USD is a safe haven just like the CHF or JPY and it was safe havens under pressure from yesterday morning straight through to now,” said Brad Bechtel, global head of FX at Jefferies.

Governments scaling back lockdown restrictions has also helped investors grow optimistic that economies could soon return to normal.

The Australian and New Zealand dollars hung onto hefty gains on Tuesday amid progress on reopening the global economy and optimism about an eventual vaccine.

Against the Japanese yen, which tends to draw investors during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation, the dollar rose 0.55% to a near one-month high.

The pound rose 0.49% against the dollar, a small recovery relative to its recent seven-week lows, as sterling is held down by Brexit risks and speculation about negative rates.

The dollar nursed losses against major currencies on Tuesday after encouraging results from the trial of a vaccine for COVID-19 improved sentiment in a boost to riskier assets.

The euro held onto hefty gains against the Swiss franc and the dollar following a proposal by France and Germany for a 500 billion euro ($543 billion) recovery fund offering grants to regions hit hardest by the coronavirus crisis.

Currencies linked to commodities and other riskier assets were broadly supported, helped also by a sharp rebound in oil prices as investors’ focus turned to recovery from the pandemic.

“There has been a big improvement in risk sentiment because of hopes for a vaccine,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Volatility is falling for stocks and dollar-funding costs are lower. It’s easy for the dollar to fall and for other currencies to ride the dollar’s losses higher.”

Wall Street shares, emerging market assets, and commodities all rallied after encouraging data from a COVID-19 vaccine trial by U.S. drugmaker Moderna added to the optimism as more governments scale back lockdown restrictions.

The euro bought $1.0913 on Tuesday, having gained 0.9% against the greenback in the previous session.

The common currency traded at 1.0613 Swiss franc after jumping on Monday to the highest in more than two months.

The euro’s rally overnight came after France and Germany proposed that the European Commission borrow money on behalf of the whole EU for the recovery fund. The news also sent Italian government bond yields skidding to their lowest in more than a month.

The proposed fund is mostly expected to benefit Italy and Spain, whose economies have been hit hard by the coronavirus pandemic but have weak public finances.

The euro’s sudden rise will face a test later on Tuesday with the release of the closely-watched ZEW survey on German investor sentiment.

The pound also benefited from the dollar’s losses and rose to $1.2204, but traders are bracing for the release of British jobs data later on Tuesday.

The dollar was little changed at 107.39 yen.

While coronavirus infection rates in many places have now fallen to levels low enough to allow factories and businesses to re-open, some concern remains because the outbreak is not completely under control.

The novel coronavirus, which causes the COVID-19 illness, first emerged in China late last year and has paralysed global economic activity as it spread across the world.

In the onshore market, the yuan was steady at 7.1090 per dollar. Investors in the pair remain wary due to simmering tension between the United States and China over trade policy and criticism of China’s early response to the coronavirus.

The yuan is likely to trade narrowly ahead of China’s annual parliament meeting due to start on Friday, where the government is expected to unveil economic targets and stimulus plans.

Moreover, some economists are starting to question whether the People’s Bank of China should adopt quantitative easing to finance an expected surge in government bonds.

Elsewhere, the antipodean currencies stood tall against their U.S. counterpart, benefiting from the improvement in risk appetite and rising commodity prices.

The Australian dollar traded at $0.6530, close to a one-week high, after the release of minutes from the Reserve Bank of Australia’s most recent monetary policy meeting offered no surprises.

The New Zealand dollar rose 0.25% to $0.6054. The kiwi rose briefly after Reserve Bank of New Zealand Deputy Governor Geoff Bascand told Reuters the central bank will re-evaluate its monetary easing in about three months to determine whether “to do more or take the foot off the pedal a little bit.”

The dollar held firm on Monday as optimism about a reopening of economies stifled by the coronavirus pandemic kindled cautious risk appetite, with a jump in oil prices lifting commodity currencies such as the Norwegian krone.

The gradual easing of lockdowns has raised hope across global markets despite signs of fresh trade tensions between the United States and China, though traders were wary of taking big bets before more data this week.

“Markets are quietly risk-on overnight,” said Adam Cole, chief currency strategist at RBC Capital Markets.

The dollar index, which posted gains of about 0.6% last week, inched up 0.02% after drifting slightly in negative territory in the early hours of trading in Europe.

U.S. Federal Reserve Chairman Jerome Powell’s willingness to print more dollars and extend the monetary stimulus further to fight the coronavirus economic crisis was welcomed by investors.

Bets against the U.S. dollar shrank to the smallest position in seven weeks in the latest week, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data released on Friday.

The Norwegian krone was lifted by rising oil prices, supported by output cuts and signs of a recovery in demand.

“The surge in oil prices will also provide a selective opportunity to sell the U.S. dollar against oil-sensitive major currencies,” wrote Stephen Innes, chief global markets strategist at AxiCorp.

Against the dollar, the krone jumped 0.7% to 10.1770. Other commodity currencies also rose and gold gained more than 1.2% to its highest in over seven years.

Gains in stocks also lifted other major currencies such as the Australian dollar, which was up half a percent at $0.6446. The euro fell 0.1% to $1.0806.

Against the yen, the U.S. currency lost about 0.2% at 107.20 per dollar after data showed Japan slipped into recession for the first time since 2015. Policymakers are bracing for the nation’s worst postwar slump.

Investors were also looking to Purchasing Managers’ Index surveys due across major economies later this week for the next insight into the outlook.

The pound took back some ground lost earlier against the euro and was trading at 89.14 pence after a week-long deadlock over a post-Brexit trade deal with the European Union.

Money markets also ramped up expectations of negative interest rates in the United Kingdom for the first time ever as policymakers debated further steps to support the struggling British economy.

The Bank of England’s chief economist, Andy Haldane, did not rule out such a move in an interview with the Telegraph newspaper published on Saturday.

The U.S. dollar was set for a small weekly gain on Friday and the Australian dollar for a 1% drop this week as the threat of a second wave of coronavirus infections rattled investors.

Total cases in Germany increased by 913 to 173,152 on Thursday and the death toll rose by 101 to 7,824 after the country eased the nationwide lockdown imposed to safeguard the economy and protect lives.

New infections were recorded as well in other countries which have eased restrictions on public life, denting earlier investor optimism that economies could go back to normal soon.

As hopes faded for a quick global recovery from the pandemic, traders unloaded the trade-sensitive Aussie and moved into safer assets such as the U.S. dollar.

“The risk is clear that the opening of economies takes longer to materialise vs what markets are discounting,” said Carl Hammer, head of macro and FICC research at SEB.

The euro was last neutral versus the dollar at $1.0812, set for a 0.3% weekly loss. The common currency held its ground after German economic output contracted by 2.2% in the first quarter, as market participants were expecting.

The German economy slid into a recession after suffering its steepest quarterly contraction since the 2009 financial crisis as shops and factories were shut down in mid-March to fight the spread of COVID-19, preliminary data showed on Friday.

Moreover, the euro zone economy experienced its deepest contraction on record in the first three months of the year against the previous quarter.

“Data published since the first estimate has been generally weaker than expected and we see a risk of the first estimates being revised down for several countries,” SEB’s Hammer said.

Kit Juckes, macro strategist at Societe Generale, said that euro/dollar “is too weak already to fall fast”. The common currency had fallen to $1.0636 in March during the coronavirus- induced market rout and is now trading not far from that level.

The U.S. dollar was steady against a basket of currencies at 100.23, although set for a 0.4% gain for the week on rising Sino-U.S. tensions. U.S. President Donald Trump signaled a further deterioration of his relationship with China over the coronavirus outbreak, saying he had no interest in speaking to President Xi Jinping right now and going so far as to suggest he could even cut ties with the world’s second largest economy.

The Australian dollar and the New Zealand dollar were both flat at 0.6461 and 0.5992 respectively. The Aussie dollar, nonetheless, was on course for a 1.1% decline since Monday.

The antipodean pair, like other majors, have struggled for traction in May as investors and authorities weigh optimism about easing virus containment measures against the risk of more infections and the sheer scale of economic damage already done.

The yen was up 0.1% at 107.09 per dollar, but has been grounding lower this week as U.S. Federal Reserve officials talked down the prospect of negative rates, also buoying the dollar.

Elsewhere, the British pound remained under pressure, falling 0.2% to $1.2207, following the British government’s reiterating its refusal to extend the Brexit transition deadline beyond December.

The Swedish crown, which took a massive hit in March was recovering and SEB estimated that on a trade-weighted basis, the currency was now at a stronger level then before the COVID-19 crisis started. The crown was last up 0.1% at 9.8035.

The dollar strengthened towards a three-week high on Thursday as stock markets weakened broadly after Federal Reserve Chairman Jerome Powell dismissed speculation about negative interest rates.

European stock markets were down more than 1% while U.S. stock futures indicated a negative start for Wall Street, pointing to a third consecutive session of losses and sending investors to the relative safety of the greenback.

Comments from U.S. President Donald Trump also lifted the dollar. Trump said he supported a strong dollar, a day Jerome Powell rejected the idea of using negative interest rates.

Though Powell is the latest in a parade of policymakers to brush off the notion that rates may enter negative territory, Fed futures were pricing a small chance of sub-zero U.S. rates by March next year.

Powell also said the recovery could take some time as he warned of a recession worse than any since World War Two.

“His words were a blow to the optimism that had been building in the markets over the last few weeks as the relaxation of social distancing restrictions had generated expectations of a V-shaped recovery from the virus crisis,” said Raffi Boyadjian, senior investment analyst at XM.

Against a basket of its rivals, the dollar edged 0.2% higher to 100.37, hovering below a three-week high of 100.44 tested earlier this week.

While the Fed chairman also urged more fiscal stimulus to support the economy, Mark Haefele, chief investment officer at UBS Global Wealth Management said the ongoing tensions between Republicans and Democrats suggested additional stimulus is “unlikely to immediately materialize”.

Among major currencies, the Australian dollar led losers after data showed the country shed jobs in April at the fastest pace on record, suggesting more monetary and fiscal easing may be needed to support the economy.

The Aussie fell 0.3% to $0.6437 after data showed unemployment increased by 594,300 in April, slightly more than the median estimate. The jobless rate rose to a five-year high.

The pound also tumbled below the $1.22 line for the first time in more than five weeks after Wednesday’s data showed Britain’s economy shrank by a record 5.8% in March as the coronavirus crisis escalated.

Investors are now focused on data from the United States and Europe in the next two days for more clues on the depth of the downturns there. U.S. initial jobless claims data is due on Thursday while the eurozone reports first-quarter GDP data on Friday.

The dollar was on the defensive against its rivals on Wednesday as traders looked to Federal Reserve Chairman Jerome Powell’s speech amid rising speculation the United States could one day adopt negative interest rates.

The New Zealand dollar fell to this week’s low after the country’s central bank expanded its asset purchase program and indicated readiness to take further steps — including negative interest rates.

The dollar traded at 107.21 yen, little changed so in Asian trade after having slipped from Tuesday’s peak of 107.76, its highest since April 24.

The euro changed hands at $1.0848 after having gained about 0.4% in the previous session.

U.S. President Donald Trump on Tuesday again pushed the Federal Reserve to adopt negative interest rates, a hot topic in financial markets since last week when U.S. money market instruments started to price in a chance of negative rates.

Data showed on Tuesday U.S. consumer prices dropped 0.8% in April, the biggest since the Great Recession, raising the spectre of deflation as the economy sinks deeper into recession and fueling the debate about policy responses.

“I would advise against negative rates. Japan has done that but the perception here is that it wasn’t so good,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

“But what’s worrying is that Trump is now talking about them. Looking at past examples, the Fed has eventually done what Trump wanted quite often.”

Powell will be speaking on current economic issues in a webcast hosted by the Peterson Institute for International Economics at 9:00 a.m. (1300 GMT).

Up until now, Fed officials have said they do not see a need to cut interest rates below zero and some market players expect Powell to stick to that script.

“If markets price in U.S. negative rates further, the Fed will need much more communication to rewind such market moves at a greater cost,” said Kazushige Kaida, head of FX sales at State Street Bank and Trust’s Tokyo Branch.

“I think his message is more likely to be something in the line that the Fed is focusing its efforts more on credit easing than negative rates.”

Still, investors think that will become an option especially if the coronavirus outbreak leads to further deterioration in the U.S. economy.

Top U.S. infectious disease advisor Anthony Fauci on Tuesday warned Congress that a premature lifting of lockdowns could lead to additional outbreaks of the deadly coronavirus.

His comments cast a shadow on optimism in financial markets in recent weeks that the worst period of the epidemic is over and the economy can only get better.

U.S. stock prices also slid, led by high-flying technology shares, adding to the cautious mood on the economic outlook.

That put a brake on a rally in risk-sensitive currencies such as the Australian dollar.

The Australian currency last stood at $0.6476, little changed on the day and off Monday’s one-week high of $0.6562.

The New Zealand dollar lost 0.6% to $0.6036, touching its lowest level this week, after the Reserve Bank of New Zealand’s policy announcement.

It expanded asset purchase to NZ$60 billion from NZ$33 billion while its policy minutes said negative interest rates are a future policy option.

The British pound stood near its lowest levels in five weeks at $1.2269, pummeled also by continued confusion over government plans to ease lockdown measures, the worst Covid-19 death toll in Europe and revived Brexit risks.

Official data published on Tuesday showed Britain’s death toll from Covid-19 exceeded 40,000 as of early May, having overtaken Italy as the worst affected country in Europe.

The U.S. dollar dipped on Tuesday after The World Health Organization said some treatments appear to be limiting the severity or length of the COVID-19 respiratory disease.

Even a small hint of positive coronavirus news limits the dollar’s appeal as a safe-haven currency as investors eye riskier assets, though declines were kept in check by growing fears of a second wave of coronavirus infections.

The U.S. currency was also supported by the Federal Reserve playing down the likelihood of negative U.S. interest rates, boosting the the dollar’s yield attraction.

Fed policymakers say they will do what it takes to cushion an economy crushed by widespread lockdowns aimed at slowing the spread of the coronavirus but are likely to stop short of negative interest rates.

New coronavirus infections have been found in China, South Korea and Germany, where respective governments have eased lockdown restrictions.

A re-emergence of coronavirus cases could dent a global economic recovery on the back of an injection of monetary and fiscal stimulus.

German economic output is likely to have declined by 20-25% for several weeks during the coronavirus outbreak, the KfW state development bank said on Tuesday.

“While the number of cases was relatively small, they do play into market fears over the threat posed by a second wave of COVID-19 infections and highlight the challenging path ahead for the global economy,” said MUFG currency analyst Lee Hardman.

The euro was last up 0.2% against the U.S. currency at $1.0830, though still not too far from the $1.0636 low touched at the end of March when the pandemic sent markets into turmoil.

The Japanese yen rose 0.2% to 107.44 against the dollar .

The Australian dollar was the biggest mover in Asian trading, dipping to a five-day low of 0.6432 after China banned some Australian meat imports. It later pared losses as Australia’s trade minister played down the issue as a technicality and was last trading up 0.3%.

Nordic currencies rose, however, with the Norwegian crown last up 0.8% at 10.2270.

Richard Falkenhall, senior FX strategist at SEB, said investors were anticipating Norges Bank buying more crowns going forward as the country looks to widen its fiscal deficit, supporting it with capital from the government’s oil fund.

Norway will sharply raise spending by its trillion-dollar sovereign wealth fund this year, the government said on Tuesday, exceeding a self-imposed cap for the first time in more than a decade to aid an economy reeling from the coronavirus crisis.

As the fund is denominated in foreign currency, this would lead to more crown buying, Falkenhall said, adding that SEB expects the central bank to increase purchases to 2.2 billion crowns a day from the current 2.1 billion crowns.

The Swedish crown followed suit, rising 0.7% to 9.8025.

The greenback was broadly supported by the possibility of U.S. President Donald Trump instructing a federal pension fund not to buy Chinese equities, making investors cautious on U.S.-Sino relations.

The White House on Monday named three nominees to sit on a board that oversees federal employee pension funds, raising the potential for the reversal of a decision to allow one of the funds to invest in Chinese companies under scrutiny from Washington.

Trump also said he opposed a reopening of so-called Phase 1 trade negotiations after China’s state-run Global Times floated the idea on Monday.

Traders will be looking for Fed Chairman Jerome Powell’s speech on current economic issues on Wednesday, when his views on the future of the monetary policy will be scrutinised closely.

The dollar rose on Monday as investors worried that economic recovery might be slower than hoped and sought the safety of the U.S. currency even though more countries eased coronavirus lockdowns.

The dollar was broadly flat overnight but rose in early London trading as investors adjusted their risk expectations with an eye on warnings of a second wave of COVID-19 infections.

Japan said on Monday it could end its state of emergency in many regions this week and New Zealand said it could ease restrictions on Thursday. The UK has also set out plans to ease the lockdown while in France shops re-opened on Monday.

South Korea warned of a second wave of the virus as infections rebounded to a one-month high and new infections have also accelerated in Germany.

“More of a risk-off tone has taken over at the start of this week,” said Lee Hardman, currency strategists at MUFG, who said that there were some concerns that the re-opening of economies in places such as Germany may have led to a pick-up in infection rate.

Against a basket of comparable currencies, the dollar was last up 0.3% since New York’s close, at 100.090.

The safe-haven Japanese yen hit a 10-day low versus the dollar, down around 0.6%, after a U.S. buyer bought a large amount of dollar-yen, forcing the pair above 107.

Also weighing on global risk sentiment is the prospect of worsening tensions between the U.S. and China.

A conciliatory phone call between U.S. and China trade negotiators on Friday staved off fears of an imminent new round of U.S. tarrifs. But U.S. President Donald Trump said he was “very torn” over whether or not to end the preliminary phase one trade deal between the two countries.

On Monday, China warned that it will take countermeasures in response to a U.S. decision to tighten visa terms for Chinese journalists. This news did not move the market, analysts said.

The euro fell against the dollar, last down around 0.3% at $1.08165.

“Developments in the euro area keep Eurozone equities and banks underperforming vs. the rest of the world, which does not help the euro,” Morgan Stanley analysts wrote in a note to clients.

The riskier Australian dollar was down 0.7% versus the U.S. dollar, while the New Zealand dollar was down 0.9% having fallen from around 0400 GMT.

The Swedish crown fell around 0.5% against the dollar, weakening to as much as 9.8150, also down around 0.2% against the euro, at 10.5985.

Minutes from the Riksbank’s latest meeting, published on Monday, showed that Swedish rate-setters were united on seeing balance sheet measures as currently the best way of conducting policy amid the outbreak of the novel coronavirus.

“EUR/SEK is approaching attractive levels to buy, the pair is oversold and no longer reflects the likely central bank easing coming up. We suggest buying EUR/SEK on dips down to 10.55 (the long term support) and target 11.20,” wrote Morgan Stanley analysts.

“All in, the factors which drove the EUR/SEK strength in the past eight years seem likely to continue to hold,” they added.

NEGATIVE RATES

The safe-haven yen hovered near a seven-week high against the dollar on Thursday as investors limited their exposure to riskier assets amid dire global economic data, rising trade tensions and concerns over the euro zone.

The yen last stood at 106.15, after rising to 105.985 per dollar in the previous session, its firmest since mid-March. Against the euro, it traded at 114.66 yen per euro, having hit a 3 1/2-year high of 114.43 overnight.

“The yen is gaining as there are some questions over the European Central Bank’s stimulus, and as tensions between the United States and China increase again,” said Shinichiro Kadota, senior strategist at Barclays.

Germany’s highest court on Tuesday gave the European Central Bank three months to justify purchases under its bond-buying program, or lose the Bundesbank’s participation in one of its main stimulus schemes.

U.S. Secretary of State Mike Pompeo on Wednesday renewed his aggressive criticism of China, as the Trump administration weighs punitive actions against Beijing over its early handling of the virus outbreak.

President Donald Trump said on Wednesday he was closely watching to see if China is fulfilling its obligations under a Phase 1 trade deal the two countries signed in January before the coronavirus spread globally.

“Last month we saw an easing in risk-off trades. But such optimism may not last long,” said Shinji Ishimaru, senior currency analyst at MUFG Bank.

“We are likely to begin to see how severe normalisation will be after the great lockdown.”

A private business survey on China, where most official lockdowns ended more than two months ago, showed the country’s service sectory activity remained mired in contraction in April as layoffs hit a record and export orders plunged.

The Caixin/Markit services Purchasing Managers’ Index (PMI) did manage to pull up to 44.4 in April from 43 in March but was still way below its 51-55 range before the pandemic.

In a further sign of weak consumption in China, the country’s imports dropped 14.2% from a year ago, a bigger decline than economists’ forecast of 11.2% fall.

But exports rose 3.5% despite expectations of 15.7% drop, helping to lift the Chinese yuan and the Australian dollar slightly.

The yuan firmed about 0.1% to 7.0959 to the dollar while the Aussie ticked up 0.25% to $0.6420.

Still, that hardly lifted the global gloom.

In the United States, private employers laid off a record 20.2 million workers in April in response to the novel coronavirus outbreak.

The staggering number, while widely anticipated since 30.3 million people had filed claims for unemployment benefits since March 21, underscored the colossal damage to the economy.

In Europe, euro zone business activity almost ground to a halt last month while retail sales suffered their largest decline on record in March amid government-imposed lockdowns.

In the UK, British construction suffered its sharpest decline on record, more than twice as large as the previous month, even though general construction work was not ordered by the government to stop.

The euro was little changed at $1.0801 after three straight days of falls so far this week, hit also by the German court decision challenging the country’s participation in the European Central Bank’s stimulus.

The British pound eased a tad on Thursday to $1.2322, touching its lowest level in almost two weeks.

The risk-averse mood undermined emerging market currencies, especially those of countries that are struggling to contain the coronavirus.

The Brazilian real dropped to 5.714 per dollar, just a hair above its record low touched last month after rating agency Fitch lowered the country’s credit rating to negative.

Brazil’s central bank slashed interest rates more than expected on Wednesday to shore up the economy though it is likely to undermine the real further.

The currency has lost 4% so far this month, and 29.7% this year, the worst among major emerging market currencies.

The country registered a record number of cases and deaths on Wednesday and has had 1.5 times as many cases as China.

President Jair Bolsonaro has drawn criticism from across the political spectrum for dismissing the threat of the virus as a “little flu.”

The Turkish lira stood at 7.2045 per dollar, close to its all-time low of 7.24 hit during a 2018 currency crisis as the country’s depleted currency reserves added to the pressure.