Growing economic damage generates demand for USD

Forex Distribution

Yesterday, the USD traded a little higher than over the past days, as a consequence of maintaining its status as a safe-haven currency, while manufacturing data from Asia hints at a severe economic slowdown, as the entire region is trying to get back on track, as the coronavirus pandemic is still affecting most branches.

At 7:10 GMT, the USD index, which follows the greenback against six major currencies, reached 99.430, up 0.3%. The EUR/USD pair fell 0.4%, reaching 1.0980, while GBP/USD also dropped 0.56, reaching 1.2353. Finally, the USD/JPY pair climbed 0.1%, reaching 107.61.

Is Asia ready to be back?

During March, most factories in Asia stopped their activity, according to Purchasing Managers’ Index, leading to economical powerhouses like Japan or South Korea register big contractions, the most important ones in about the decade.

In the meantime, the news that the U.S. Federal Reserve managed to broaden the ability of several foreign central banks to access funds during the coronavirus outbreak, by granting the exchange of holdings of Treasury securities for overnight USD loans limited the dollar’s gains.

Dollar liquidity, one of the U.S.’ priorities

“The Fed clearly wants to do everything it can to ensure dollar liquidity, which puts downward pressure on the dollar,” claims Kyle Rodda, an analyst at broker IG Markets.

“But by the same token, there is still this very structural push to buy dollars right now because liquidity is coming at an absolute premium with so much risk in the market.”

With the United States being the most affected country by the coronavirus outbreak at this very moment, it’s very likely to see the USD losing ground over the next days, as investors could switch their focus to CNY and JPY, two of the currencies which started to regain territory lately.

United States Dollar