· Dollar rises as investors take refuge ahead of Fed
The U.S. dollar rose from early lows on Wednesday as investors wary of wider geopolitical risks sought its relative safe haven ahead of midday remarks by Federal Reserve Chair Jerome Powell.
Sentiment was driven by record-high coronavirus infections in six U.S. states, new cases of the disease in Beijing, and clashes between Indian and Chinese troops in the western Himalayas.
Fed Chair Powell will speak at noon EDT in his second day of remarks to U.S. lawmakers. On Tuesday, Powell tamped down some recent market optimism with a bleak U.S. economic picture, while reinforcing hopes for continued policy support.
The dollar edged 0.27% higher to 97.25 against a basket of currencies, lifting it nearly 0.5% from the day’s lows.
The dollar index has recovered from a three-month low last week, but the outlook for the safe-haven currency looks weak as U.S. economic data has begun to recover and stock indexes have soared.
Powell on Tuesday said that a full U.S. economic recovery will not occur until Americans are sure the coronavirus pandemic has been brought under control. That remains far from certain, with new infections hitting record highs on Tuesday in six U.S. states, including Texas and Florida.
China has also sharply ramped up restrictions on people leaving Beijing in an effort to stop the worst coronavirus flare-up since February from spreading.
The Fed’s cautious message also checked momentum in the euro , which held well below a three-month high of $1.142 hit last week. It was trading at $1.122 on Wednesday, down 0.35% after rallying nearly 5% since a Franco-German proposal for a recovery fund in late May.
· Fed's Mester sees U.S. economy facing 'long road back' from crisis
The U.S. economy could be slammed with a record decline in the second quarter and then face a long road to recovery, with the pace dependent largely on the success of efforts to limit the spread of the coronavirus, the president of the Cleveland Federal Reserve Bank, Loretta Mester, said on Wednesday.
Private-sector forecasts call for the gross domestic product in the second quarter to decline by an annual rate of 25% to 40%, which would likely be a record decline, Mester said during a virtual forum.
Mester said she expects the U.S. economy to contract by 6% in 2020 and for the unemployment rate to remain elevated, reaching around 9% at the end of the year. “This is going to be a long road back,” Mester told reporters after the event.
The Fed moved quickly to bolster the U.S. economy from the risks of the pandemic by cutting interest rates to near zero and establishing a suite of emergency lending facilities to keep credit flowing to businesses and households. Mester said Wednesday that it would be appropriate for rates to stay near zero through 2022.
· WHO urges caution on ‘breakthrough’ coronavirus drug dexamethasone, citing early data
The World Health Organization is urging the public to be cautious about dexamethasone as information on the use of the steroid treatment for Covid-19 is still in the preliminary stages.
The results from the RECOVERY trial at the University of Oxford were “very significant,” but it was only one study, Mike Ryan, executive director of the WHO’s emergencies program, said during a press conference Wednesday at the agency’s Geneva headquarters. “We have to see the real data, the full data.”
On Tuesday, scientists at Oxford said results from a trial showed the drug, which is widely used to reduce inflammation in other diseases, reduced death rates by around a third among the most severely ill Covid-19 patients admitted to hospital. There was no benefit among patients who did not require respiratory support.
Ryan said WHO officials were “very pleased” with the findings, adding the drug is one of “the many breakthroughs we need” to eliminate Covid-19.
· Morgan Stanley says a second wave of coronavirus won’t derail Asia’s economic recovery
Another wave of coronavirus outbreak in Asia will not be as economically damaging as the first, said a Morgan Stanley economist as several countries like China and South Korea recently experienced an uptick in the number of cases.
Worries that a second wave of infections would once again derail the global economy have heightened in recent months as an increasing number of countries are easing restrictions that were imposed to contain the coronavirus outbreak. The first round of lockdown measures, which stalled much of economic activity, sent global economies into a recession.
But Deyi Tan, who is also managing director at Morgan Stanley, said that if there is a second wave, it will likely be more manageable as policymakers have learned to handle such situations.
· Trump signs bill pressuring China over Uighur Muslim crackdown
President Donald Trump signed legislation on Wednesday calling for sanctions over the repression of China’s Uighur Muslims, as excerpts from a book by former U.S. national security adviser John Bolton alleged that Trump encouraged China’s president to continue with detention camps for the minority group.
The bill, which Congress passed with only one “no” vote, was intended to send China a strong message on human rights by mandating sanctions against those responsible for oppression of members of China’s Muslim minority.
China denies mistreatment and says the camps provide vocational training.
Trump signed the bill as Secretary of State Mike Pompeo held his first face-to-face meeting since last year with China’s top diplomat, Yang Jiechi.
· Bank of England set to rebuild stimulus war-chest
The Bank of England is expected to build back its war-chest for fighting the coronavirus crisis on Thursday by announcing an increase of at least 100 billion pounds ($125 billion) in its bond-buying programme.
The British central bank has already spent most of the 200 billion pounds of fresh firepower it gave itself in March as it soaks up much of the government’s COVID-19 borrowing.
With its key interest rate at just 0.1%, Governor Andrew Bailey has said the BoE will contemplate going below zero for the first time, but the review will take time.
· Tensions between North and South Korea to escalate further after Pyongyang bombed joint office, analysts say
Tensions between the two Koreas may continue to rise after a joint liaison office in a border town was blown up, analysts said on Wednesday.
“We are going to see a gradual incremental ramping up of tensions,” said Jung Pak, a senior fellow at Brookings Institution.
The demolition of the joint liaison office on Tuesday came after Pyongyang said it was cutting off a hotline with South Korea and threatened to abandon an inter-Korean military agreement that aimed to reduce border tensions.
Pak warned of unpredictable, unstable times ahead as the world does not know what has motivated Pyongyang’s recent behavior.
South Korea is not taking the latest provocation lying down. On Wednesday, it said that recent North Korean criticism of Moon was senseless, Reuters reported, citing a presidential spokesman. Seoul will also no longer accept unreasonable behavior by the North, the Blue House reportedly said.
· Oil dips 1% as oversupply fears grow
Oil prices edged lower on Wednesday as a drawdown in U.S. distillate stockpiles for the first time since March and a sharp drop in U.S. crude production faced concerns over fuel demand due to fresh outbreaks of COVID-19.
Brent crude was down 35 cents, or 0.85%, at $40.61 a barrel. West Texas Intermediate fell 42 cents, or 1.09%, to settle at $37.96 per barrel.
Reference: CNBC, Reuters
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