Ranko Berich (Monex Europe) | “After months of the greenback rallying on bad news as investors sought safe havens, it seems like the uniquely bad domestic COVID-19 situation has finally caught up with the US dollar. It is the end of the quarter, but today’s price action nonetheless has a feel of the dollar’s chickens coming home to roost.
The news that 6,000 new cases have been recorded in Florida was simply the last straw: it’s been clear for some time that the US virus outbreak is far from over, and that significant lockdown measures will probably need to be re-imposed in several places. As economic data from the second quarter has shown, this has severe economic costs.
In weeks and months gone past the US dollar’s “exorbitant privilege” as the global reserve currency and premier safe haven has meant markets have been willing to overlook the painful reality that is the relative mismanagement of the pandemic in the US. However, with peer economies in Europe, Asia, and elsewhere re-opening without major virus spikes, the contrast to the ongoing crisis in the US is all the sharper and it looks like markets are finally willing to punish the dollar at the margin.
Sterling is enjoying a bid along with the rest of the G10 – but this should not be mistaken as a sign of optimism about the impacts of Boris Johnson’s “new deal” of £5bn in infrastructure. £5bn is a drop in the ocean compared to the UK economy. Public debt is currently just shy of £2 trillion, and it’s been clear for some time that fiscal policy under this Government will be as accommodative as it needs to be.