Surging USD Climbs Close to 6-Week High as Fears of Increasing COVID Cases Return

A strengthening USD held on to overnight gains on Tuesday after virus fears and worries about U.S. stimulus drove a wave of selling in multiple currency pairs. The USD rose 0.6% against the EUR, 0.9% against the AUD, and even made gains against the safe-haven currencies of the JPY and CHF. The DXY index hit a six-week high and held just below that in early Asian trade at 93.547. Meanwhile gold fell against the rising dollar.

“The equity sell-off gathered quite a dramatic momentum during the European day and the risk-averse characteristics of the U.S. dollar really came to the fore,” said National Australia Bank’s Ray Attrill.

The heaviest selling was in financials after a fresh “dirty money” scandal embarrassed global banks but soon spread to other sectors and asset classes amid worries about possible new lockdowns as COVID-19 cases spread.

Investors are also fretting that the chances of more fiscal stimulus in the U.S. are likely as campaigning dominates the political landscape.

“A lot now depends on whether or not what we’ve seen in the last 24 hours is sustained,” said Attrill. “There’s good reason to think that we could be in for a multi-week period where the dollar at least stops declining.”

Some of the dollar buying slowed as stocks rallied off session lows into the Wall Street close, but a clearer picture may have to wait until the London open, with another public holiday in Japan lightening volumes in Asia.

The AUD last sat at $0.7230, just above a two-week low touched on Monday. The NZD, which fell 1.3% in the rout, nursed losses at $0.6668.

The NOK (Norwegian Krona), which was slammed 2% lower as oil prices also slid, sat near a two-month low hit overnight.

The EUR held just above a six-week trough at $1.1766, while GBP was fragile at $1.2818 amid talk of fresh restrictions in Britain as virus cases grow. Britain will face an exponentially growing death rate within weeks unless urgent action is taken to halt the outbreak, the country’s senior medics said on Monday. Prime Minister Boris Johnson will encourage Britons on Tuesday to go back to working from home.

Perhaps the most confounding move overnight was the swift unwinding of gains in the JPY made during Asian trade. The Japanese currency has been among the best performing majors this month as jitters in stock markets have driven safe-haven demand. But it slipped from a six-month high of 104 per dollar to 104.68 as investors crowded into dollars.

“It’s not uncommon with sudden yen moves that it’s driven by domestic asset managers coming in to buy foreign assets at the lows, and buying dollars to pay for them,” said Stuart Oakley, a London-based executive at Nomura.

“But I don’t really know what is behind this particular bounce,” he said.

“My own personal view is this is all just a correction within a major trend for stronger asset prices in the U.S. and a weaker dollar, with the uber-easy U.S. monetary policy the overwhelming driver of everything.”

Later on Monday, U.S. President Donald Trump told thousands of supporters at a political rally that he was rebuffed by officials when he asked about adjusting the exchange rate of the dollar in response to what he described as currency manipulation by China.

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