The Dollar falling from its highest; the Euro is also under surveillance

By Peter Nurse

The dollar has retreated in european trade early Friday, but remains not far from a peak of two weeks, as an increase in infections Covid-19 has increased fears of a possible second wave.

Has 10h35, the dollar index, which tracks the greenback against a basket of six other currencies, fell 0.1% 97,352. The index had previously reached a higher daily 97,495, a level not seen since the beginning of the month.

The USD/JPY has declined 0.1 % to 106,91, while the AUD/USD risk-sensitive, has increased from 0.2% to 0,6867.

The rise of the cases of coronavirus in many us States this week, as well as increased hospitalizations, have raised concerns about the need to re-introduce some of the measures of social distancing, which have been lifted during the reopening of States.

Over 150 new cases have also been detected in Beijing since last week, which helped to raise the alert level of the city and re-introduce measures to restrict travel.

In addition, the first numbers of applications for unemployment benefits Thursday, showed an improvement in the job market, but growth is slowing and suggests that the recovery will take time.

The euro rose 0.1 % to 1,1212 $, a little more than the lowest level of 1,1186 $ reached Thursday.

The EUR/USD is down about 0.4% this week, but still up 2.1 % on the month, while the questions multiply on the political viability of the recovery plan of the european Union.

The 27 heads of State and government of the bloc will meet Friday, by videoconference to discuss a proposal from the european Commission to borrow 750 billion euros on the EU budget in a bid to revive the region after its economic downturn without precedent.

There are major disagreements on the size of the stimulus plan and on the question of whether the two-thirds of this amount must be paid to the member States in the form of grants, as the Commission proposes.

“The latest noises are that an agreement already concluded seems unlikely (we believe that an agreement could be reached as late as the end of July),” said the analysts of the Danske Bank, in a research note, “but this will give some clues to know if the EURphorie of the market these past few weeks was justified or if the initiative is going to be diluted significantly”.

The GBP/USD rose 0.2 % to 1,2452, helped by a leap of 12 % in retail sales in may, rebounding after falling to a record 18 % from the previous month.

Sales were boosted by a 42% increase in the stores of household items, with the re-opening of diy stores and garden centres.

That said, the pair is just above a low of two weeks to 1,2403, following the decision of the Bank of England on Thursday to increase its bond purchases of only 100 billion pounds until 2021.

“We believe that it is likely that the BoE may need to expand the quantitative easing program of 50 to 100 billion pounds sterling in the fall,” said Danske Bank.

On Friday, the Russian central bank is expected to meet and is expected to reduce its benchmark rate by one percentage point to bring it back to 4.5 %, with forecasts that may show that further reductions are in progress.

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