Forex Comment Jul 23

Out of control US virus situation sinks dollar

‘Impact of the stepped-up anti-China campaign remains negligible'

Out of control US virus situation sinks dollar

(ATF) Several noted medical experts and numerous medical workers on the frontlines of the Covid-19 battles in Florida, Texas and California consider the situation out of control as even the number of newly infected can no longer be ascertained with any degree of certainty.

Under these circumstances, US unemployment and overall economic conditions are expected to substantially worsen again before they improve, to quote President Trump – though he referred to the virus’ impact on health rather than the economy.

Seeing his re-election chances dim as he cannot count on an early economic turnaround, Trump is now training all his political armoury on China with Secretary of State Mike Pompeo the front gunner. 

The outcome so far? It's not working. Equity markets and currencies are looking further into the future than Trump's failing and flailing presidency. The impact of the stepped-up anti-China campaign remains negligible.

READ MORE: US-China tensions curb risk appetite

The US and Chinese currencies are showing little interest in the rhetoric of Pompeo and his underling, the UK's Foreign Secretary Dominic Raab.

The US dollar on the dollar index (DXY) plumbed new depths today, hitting 94.7930 at 3pm HK time, it's lowest level since June 2018.

Massive new debt accumulation over the past four months is only getting worse as Congress ponders another $1 trillion or larger aid package before taking an August break.

China's central bank, the People’s Bank of China, set central parity of the yuan against the USD at 6.9921 Thursday morning. It was trading at pretty much the same level at 7pm HK time.

The other major currency that's been steadily rising recently is the euro. Showing little interest in joining the Anglo-Saxon anti-China front announced by Pompeo and Raab with fanfare on July 22, the EU has put together an EUR750 billion economic recovery package. 

Given the ability of the EU nations to get the coronavirus pandemic largely under control, the new aid package will have a good chance for economic recovery and will follow suit on China's turnaround.

The EUR traded at 1.1572 at 7.30pm, the highest since October 2018.