· Dollar bogged down as investors turn to Congress for stimulus
The dollar was mired at a more than two-year low on Thursday, as investors grew increasingly worried about the economic drag of surging coronavirus cases in the United States, and looked to a fiscal rescue package stalled in Congress for another stimulus hit.
Overnight, the Federal Reserve kept pressure on the currency by leaving the door open to further easing, while calling out the economic toll from the latest wave of new infections.
Against a basket of currencies =USD the dollar was pinned close to its lowest since mid-2018 at 93.344, while Antipodean currencies were poised near multi-month peaks.
Against the euro EUR=EBS, the dollar was just above a 22-month low of $1.1807 touched overnight. The greenback is set for its worst month in a decade on the common currency as the recovery outlook in Europe brightens just as it darkens in the United States.
The U.S. epidemic has intensified since June. California, Texas and Florida all posted one-day records for fatalities on Wednesday.
The safe haven yen JPY= sat at 105.07 per dollar, having hit a four-and-a-half-month high of 104.77 on Wednesday.
The dollar has lost 4.6% of its value against the euro and 2.7% against the yen in July and slid 7% against a basket of currencies since mid May =USD.
Sino-U.S. relations have deteriorated sharply over issues ranging from the pandemic to Beijing’s territorial claims in the South China Sea and its clampdown on Hong Kong.
That has weighed on the yuan, which has been all but left behind as the dollar has slumped, and was steady on Thursday at 6.9965 per dollar onshore CNY=.
China is also lagging behind agricultural purchases promised under January’s trade deal.
· Treasury yields move lower after Fed keeps interest rates near zero
U.S. government debt prices were higher on Thursday morning, after members of the Federal Reserve voted to keep interest rates unchanged and vowed to support the world’s largest economy through the coronavirus pandemic.
At around 1:30 a.m. ET, the yield on the benchmark 10-year Treasury note was lower at 0.5708%, while the yield on the 30-year Treasury bond was also down at 1.2286%. Yields move inversely to prices.
The U.S. central bank voted to keep its benchmark overnight lending rate anchored near zero, where it has been since March 15.
· U.S. economy likely suffered historic plunge in second quarter; outlook murky as COVID-19 cases surge
The U.S. economy likely contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic destroyed consumer and business spending, potentially wiping out more than five years of growth.
The bulk of the historic plunge in gross domestic product expected to be reported by the Commerce Department on Thursday occurred in April when activity almost ground to an abrupt halt after restaurants, bars and factories among others were shuttered in mid-March to slow the spread of coronavirus.
Gross domestic product probably collapsed at a 34.1% annualized rate last quarter, according to a Reuters survey of economists. That would be the deepest decline in output since the government started keeping records in 1947.
The drop in GDP would be more than triple the previous all-time decline of 10% in the second quarter of 1958. On a non-annualized basis, GDP likely tumbled 10.6%. The economy contracted 5% in the first quarter.
“The forecast implies that the level of real GDP actually fell by roughly 11% in the first two quarters of 2020,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City. “If so, that would wipe out more than five years of growth, and pull real GDP back to its levels last seen in the middle of 2014, at least as currently reported.”
With the second-quarter GDP report, the government will publish revisions to data going back five years. The economy slipped into recession in February.
The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package. President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice three months before the Nov. 3 election, said on Wednesday he was in no hurry.
Consumer spending
The loss of tens of millions of jobs and closure of countless businesses during the early stages of the pandemic shook households to the core. The amount of money consumers spent likely fell by a record 35%, according to Wall Street DJIA, +0.60% economists.
Consumption represents about 70% of U.S. economic activity. The unprecedented drop in spending is expected to account for the bulk of the decline in GDP.
Spending on services fared the worst. Travel dried up, fewer people went to doctors or dentists for regular care, indoor dining at restaurants was barred and people couldn’t get haircuts, among other things.
· France's crisis recovery may be better than expected: central bank head
France’s economic slump may not be quite as bad as forecast and activity in the euro zone’s second biggest economy could return to pre-crisis levels in early 2022, the central bank governor has said.
Francois Villeroy de Galhau told Paris Match magazine that President Emmanuel Macron’s government must spend wisely to rebuild trust in the economy. Household and private sector confidence were the key to a relatively swift recovery, he said.
“Our forecasts predict a 10% fall in GDP this year: it may be a little better, with a strong rebound afterwards to hopefully regain a pre-COVID level of activity at the start of 2022,” Villeroy said in the interview published on Thursday.
The government availed a crisis package worth 137 billion euros, or more than 6% of gross domestic product, to cushion the immediate impact of the epidemic and also committed to guarantee 300 billion euros in bank loans to help keep firms afloat.
· Austrian economy slumps by 10.7% in second quarter as coronavirus bites: Wifo
The Austrian economy shrank by 10.7% in the second quarter, marking its biggest contraction since World War Two, as the coronavirus pandemic hit both domestic and foreign demand, think tank Wifo said on Thursday.
Wifo, which compiles data for the government, said the most heavily affected sectors included retail, hotels, restaurants, sports and entertainment.
When compared to the prior-year period, second-quarter gross domestic product (GDP) declined by 12.8% in real terms.
· Hong Kong opens dining in shelters as residents struggle with restaurant ban
Hong Kong authorities on Thursday opened 19 community centres for residents to eat inside after a virus-induced ban on indoor dining at restaurants forced many workers to have their meals outside on pavements under sweltering heat and rain.
The restaurant ban, which took effect on Wednesday, barred any outlet from allowing dine-in patrons to curb the spread of COVID-19, an unprecedented move in the financial hub where hundreds of thousands depend on eating out for daily meals.
· Oil prices dip as virus concerns weigh on demand hopes
Oil prices slipped on Thursday, weighed down by concerns that surging coronavirus infections around the globe could jeopardize a recovery in fuel demand just as major oil producers are set to raise output.
The most-active Brent crude contract for October fell 2 cents, or 0.05%, to $44.07 a barrel at 0555 GMT. The September Brent contract, which is expiring on Friday, fell 7 cents to $43.68 in light trading.
U.S. West Texas Intermediate (WTI) crude futures were down 5 cents at $41.22 a barrel.
Both benchmark contracts rose on Wednesday after the U.S. Energy Information Administration (EIA) reported the largest one-week fall in crude stocks since December.
Reference: MarketWatch, CNBC, Reuters
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