Euro set for seventh day of gains, dollar loses to riskier assets

June 3, 2020

LONDON (June 3) - The euro topped an 11-week high on Wednesday, on track for a seven-day winning streak, and the dollar fell against most currencies as the prospects of more stimulus and hopes for economic recovery led investors to buy riskier assets.

Overnight euro implied volatility gauges jumped to 12%, their highest in one month, suggesting traders were preparing for moves bigger than usual in the common currency. EURONO=FN

The Australian dollar hit a five-month high of 0.6982 against the U.S. dollar AUD=D4, as funds sought exposure to economies expected to make the fastest recoveries from the coronavirus pandemic.

The U.S. dollar also fell against the British pound, the Norwegian and Swedish crowns, and the Canadian dollar as mass protests against racism across the United States weighed on the currency.

An index of the dollar against six major currencies =USD fell to nearly a three-month low of 97.28.

“The strengthening of the risk-linked Aussie and Kiwi, combined with the weakness of the safe-havens dollar, yen, and franc, suggests that investors continued increasing their risk exposures for another day,” Charalambos Pissouros, senior market analyst at JFD Group, said.

“It seems that investors are still looking past the U.S.-China tensions and the civil unrest in the U.S.,” he said.

President Donald Trump has threatened to use the military to quell protests against racism and police brutality. U.S. stocks continue to rally, however, leaving some currency traders confused about the market’s direction.Generally, traders preferred to bet on a global economic recovery.

Dollar/yen was last up 0.1% at 108.79 JPY=EBS.

The euro reached an 11-week high of $1.1125 on expectations policymakers will support the euro zone’s weakest economies with debt purchases. The common currency was last up 0.4%. The seven-day winning streak was the longest since December 2013.

The euro also rose against the Swiss franc to $1.0797 EURCHF=EBS, the highest since Jan. 14, trading last up 0.4%.

The euro disregarded a contraction in economic activity in May reported by IHS Markit’s Final Composite Purchasing Managers’ Index (PMI).

In addition, the number of people that lost their jobs in the euro zone in April was 211,000, bringing the number of the unemployed to 11.919 million or 7.3% of the workforce, up from 7.1% in March.

But investors did care about expectations the European Central Bank will increase its 750 billion-euro ($839.25 billion) bond-buying programme, the Pandemic Emergency Purchase Programme, when it meets on Thursday.

Investors also hoped a 750 billion-euro recovery fund proposed by the European Commission would soon take form and bolster-the worst performing countries in the bloc.

But Kit Juckes, macro strategist at Societe Generale, said he was “more wary of the euro than some other currencies” because he doubted the implementation of the recovery fund as proposed and that the ECB could continue to inject liquidity into markets, due to a German court ruling a few weeks ago.

The Chinese yuan rose to nearly a one-month high of 7.0883 against the dollar in the offshore market CNH=EBS. China was the first major economy to ease strict lockdown restrictions, making it likely to recover earlier than other countries.

The Norwegian crown hit a three-month high of 9.4735 against the U.S. dollar NOK=D3, last trading up 0.8%. The currency is so far the best performing in the G10 space.

The New Zealand dollar was up 0.3% NZD=D4, after earlier reaching a three-month high of 0.6430. New Zealand Prime Minister Jacinda Ardern said on Wednesday she could lift all social-distancing measures to return the country to normal life, bar the international border closure, as early as next week.

The Aussie dollar was last neutral at 0.6895.


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