US dollar slides as California lockdown order sparks fears

The US dollar slumped from a record high after a statewide stay-in-place order in California ignited..

The US dollar slumped from a record high after a statewide stay-in-place order in California ignited worries that other states may follow suit and push the world's largest economy into recession.

The Bloomberg Dollar Spot Index slipped as much as 1.2 per cent as the greenback weakened against every major currency.

California Governor Gavin Newsom's step on Thursday marks the most stringent effort yet in the United States to curb the spread of the virus. Without action, an estimated 56 per cent of people in the most populous US state would be infected, he predicted.

"The dollar is getting sold partly on concern that if California and some other big states follow, unemployment would rise dramatically and push the US into some place between a recession and a depression," said Mr Mark Grant, chief global strategist at B. Riley FBR.

"It's a knee-jerk reaction of people thinking 'gee, we didn't think the US could get into this kind of trouble – but perhaps they can.'"

The dollar gauge had rallied more than 8 per cent over the last eight sessions, gaining in each one, as demand for the world's reserve currency jumped in anticipation of a prolonged coronavirus pandemic.

South Korea's won and the Australian dollar both rallied about 3 per cent yesterday to be the biggest beneficiaries of the greenback's decline. The pound jumped as much as 2.5 per cent.

Asian currencies are seeing a temporary respite thanks also to the expansion of dollar-swap lines by the Federal Reserve, said Mr Moon Hong-cheol, a fixed-income and FX strategist at DB Financial Investment in Seoul.

However, markets will continue to crave the dollar and remain volatile, he said.

The Fed established temporary dollar liquidity-swap lines with nine additional central banks, including those of Australia and South Korea, expanding the rapid roll-out of financial crisis-era programmes to combat the economic meltdown from the pandemic.

The swap lines will be in place for at least six months.

"The softer USD tone is giving some respite to many badly beaten-up currencies," said Mr Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore. However, "it's early days to say this is a more pronounced USD reversal", he said, adding that demand for the dollar remains hRead More – Source




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