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Risk-sensitive currencies fall on fears of second wave; dollar rises

The dollar rose and commodity currencies fell as a “risk-off” sentiment dominated markets, driven in part by fears of a second wave of COVID-19 infections after new cases were recorded in Beijing and U.S. numbers spiked over the weekend.

Beijing reported its second consecutive day of record numbers of new infections on Monday. In the United States, more than 25,000 new cases were reported on Saturday alone.

Against a basket of currencies, the dollar surged overnight, steadying somewhat in early London trading, and was up 0.2% on the day at 0700 GMT <=USD>.

The Australian dollar was down around 1% versus the dollar, while the New Zealand dollar was down 0.7%, both having hit their weakest levels in more than a week .

But despite the risk-off mood, the safe-haven Japanese yen did not strengthen significantly versus the dollar, and was at 107.28 , while the Swiss franc was still relatively weak versus the euro, at 1.0723 .

While many analysts attributed the dollar’s strengthening to fears of a second wave of the virus, Commerzbank’s Ulrich Leuchtmann said that there had long been stories of new infections. The fact that other safe-haven currencies did not strengthen suggests the dollar’s rise is more a product of its recent weakening, added Leuchtmann, the bank’s head of FX and commodity research.

“In my view it is all much more trivial. Following a pronounced period of USD weakness it is now time for a correction and profit-taking,” he said.

Industrial output in China rose for a second consecutive month in May, but the rise was smaller than expected, suggesting the world’s second-biggest economy is struggling to get back on track after containing the coronavirus.

“More evidence of economic recovery in China is a positive development for the global economy although market participants understandably remain on edge over the risk of further disruption from second waves,” Lee Hardman, currency analyst at MUFG, wrote in a note to clients.

European countries eased some border controls on Monday following coronavirus lockdowns, a move that could help salvage part of the summer season for Europe’s battered travel and tourism industry.

The euro was down 0.2% against the dollar at $1.1232.

Financial markets may be in the process of repricing the world’s most-traded exchange rate, with derivative contracts suggesting the euro could surge by as much as 6% against the dollar to $1.20 by year-end.

As oil prices fell, the Norwegian crown hit a 4-week low versus the euro.

The Bank of England, Swiss National Bank and Norges Bank will all hold meetings on Thursday and are expected to keep their main policy rates unchanged.
Source: Reuters (Reporting by Elizabeth Howcroft; Editing by Pravin Char)

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