Published: October 10th, 2020
The dollar recorded modest but significant leaps following Trump’s coronavirus test result announcement. The currency’s index was up +0.2% on Friday, October 2. The Japanese yen too saw gains reaching the week’s highest level. The stock markets, on the other hand, struggled. With Trump back in the White House, the narrative has changed.
President Trump announced on Friday, October 2, that both he and First Lady, Melania Trump, had contracted coronavirus. Soon after the announcement, the president’s physician was quick to release a statement saying that both patients were well.
The financial markets reacted to the news by igniting an appetite for haven currencies. Both the dollar and the Japanese yen made decent gains. According to market insiders, the news instigated a mild panic in the financial markets as investors prepare for a hotly-contested election in November.
The greenback gained about a half a percent against the risk-sensitive New Zealand and Australian dollars. The Japanese yen was also up some 0.3% to trade at $103.27, the best performance for the week that ended Saturday, October 3.
Overall, the Australian dollar index was down by 0.5%. The euro also fell by 0.3% to post $1.1716 at the end of the week’s trading session.
The yen’s larger gains against most other currencies are attributed to the evident shift from risky assets and commodities. Besides, the holidays in China also affected the trading volumes.
Analysts think that Trump’s announcement might turn the presidential campaigns topsy-turvy. However, they add that the medium-term implications on the major global currencies remain unclear.
The senior currency strategist at the Sydney-based Westpac Bank, Sean Callow, said that the announcement has the potential of reducing the president’s ability to campaign effectively. He added that it also hurts Trump’s ongoing narrative of downplaying the pandemic, and instead puts COVID-19 smack in the center.
However, he fell short of declaring if the president’s statement would shift polls.
As a result of the financial market’s turbulence, the Australian dollar closed the week at $0.7144 with the Kiwi closely behind at $0.6629. The greenback’s surge against the basket of six major currencies represented an upward index shift to 93.899.
At the beginning of the first trading week of October, investors were already anxious following signs that the much-hoped-for stimulus package was stagnating in Congress. Besides, the series of data such as consumer spending and the jobless claims numbers indicated that the trudging U.S. economic recovery was fast running out of gas.
According to Moh Siong Sim, the FX analysts at the Bank of Singapore, the entire script shows that the risk of coronavirus is still very much alive and real. He added that since the U.S. infection rates are not slacking anymore, the population has been reminded that the virus is still around.
The euro and pound, which already face huge domestic troubles, surged rapidly despite having risen the previous day because of the rallying U.S. stocks. The disappointing data released from Europe regarding the bloc’s PMIs and the stalling Brexit deal are the biggest pitfalls of the two currencies.
The temporary rise of the euro and pound now seems to have shifted downward and will most likely enforce a push from individuals in the forex trading circles towards the U.S. dollar as the haven currency. It would not come as a surprise since forex brokers often resort to the greenback during uncertain times.
The euro immediately manifested the movement, falling fast below the $1.17 mark where it has been holding the fort for weeks now.
Stock futures also went down sharply. The Dow Jones futures bled some 400 points just minutes after the news erupted. The descent is a blow to the market considering it is coming on the backdrop of a positive trend recorded for the first time in weeks.
The rise in futures came after another slump in jobless claims and the economy’s anticipation of a fresh stimulus bill. The fate of the latter now hangs in the balance after President Trump reiterated on Tuesday, October 6, that he has discontinued any negotiations about the bill with Democrats.
The full effect of Trump’s announcement remains to be seen. However, any such sudden and significant development often comes with at least a temporary effect. The good news is that the country is in an election cycle, as such, traders may disregard the expected short-lived effects and instead, train their eyes on the September jobs report, which is expected in a few weeks.
In the Asia-Pacific front, the news dried up the risk appetite. Australian benchmark ASX 200 dropped some 2%. The surge of the greenback and the Japanese yen probably is the clearest indication yet that investors were fleeing risky assets as a result of the news.
After spending two days at the Walter Reed Medical Center, the U.S. president is now back in the White House. His return, however, has aroused even more confusion in the markets. Stocks displayed mixed action on Wednesday, October 7.
The confusion arose mostly because of Trump’s action to stop all negotiations on the anticipated fresh stimulus despite weeks of back and forth between Republicans and Democrats. Asian markets were unstable despite a decline experienced overnight on Tuesday, October 6.
Trump’s announcement on Twitter came shortly after Federal Reserve Chair, Jerome Powell beseeched Congress to come through with additional aid. Jerome said that further aid is necessary now more than ever since the absence of support is likely to degenerate into a weak recovery and unnecessary hardships.
U.S. President Donald Trump announced on Friday, October 2, that he had tested positive for coronavirus. Subsequently, he and First Lady, Melania Trump went into isolation in the White House. The news sent the markets tumbling even as the dollar and yen surged, probably because traders scrambled for haven currencies. However, with the president back in the public limelight and with any hopes of an additional stimulus package dashed, the markets are in a state of confusion.