Dollar Moves Higher On Concern About Covid Mutation
Rich Asplund - Barchart - Tue Dec 22, 2:52PM CST
The dollar index (DXY00) on Tuesday rose +0.627 (+0.70%). Mar euro-fx futures (E6H1) closed down -0086 (-0.70%), and EUR/USD (^EURUSD) fell -0.0086 (-0.70%). Mar yen futures (J6H1) closed down -0.0031 (-0.31%), and USD/JPY (^USDJPY) rose +0.37 (+0.36%).
The dollar index on Tuesday moved higher throughout the day but remained below Monday's 1-week high. Concern about the mutation of the Covid strain in the UK has sparked some safe-haven buying of the dollar Tuesday. The dollar extended its gains Tuesday as GBP/USD on Brexit woes fell after the EU rebuffed UK Prime Minister Johnson's latest concession on fishing rights. EUR/USD moved lower after the International Monetary Fund (IMF) warned that the recovery in the Eurozone might slow. USD/JPY posted moderate gains on dollar strength.
The U.S. Congress on Monday night passed the second-biggest economic rescue package in U.S. history as well as an omnibus spending bill. The White House said President Trump would soon sign the bill to make it law. Moody's Analytics estimates the $900 billion pandemic rescue package could add 1.5 percentage points to U.S. annualized GDP growth in Q1-2021 and close to 2.5 percentage points to calendar-year 2021 GDP.
The emergence of a new variant of Covid in southeast England has sparked some safe-haven buying of the dollar. Preliminary analysis in the UK based on transmission modeling suggests the new mutated Covid virus may be as much as 70% more transmissible than other circulating Covid strains, which sparked a full lockdown in London and southeast England that will force 16 million Britons to stay at home. Also, the UK port of Dover, England's biggest, stopped all traffic heading to Europe, and many countries have banned flights from the UK.
Tuesday's U.S. economic data was mixed for the dollar. On the positive side, U.S. Q3 GDP was revised upward to +33.4% (q/q annualized) from +33.1% (q/q annualized), the fastest pace of growth since quarterly data began in 1947. Also, the Dec Richmond Fed manufacturing survey unexpectedly rose +4 to 19, stronger than expectations of -4 to 11. Conversely, the Conference Board's U.S. Dec consumer confidence index unexpectedly fell -4.3 to a 4-month low of 88.6, weaker than expectations of an increase to 97.0.
The worsening Covid pandemic has prompted many states and countries to impose more restrictions, which will undercut economic activity and is dovish for central bank policies and negative for the dollar. The U.S. 7-day average of new Covid deaths rose to a record of 2,712 on Monday. The Covid virus has infected 77.862 million persons globally, with deaths exceeding 1.712 million.
EUR/USD on Tuesday posted moderate losses after the IMF warned that the Eurozone is in danger of seeing a slower economic recovery in 2021 than previously expected and may need additional stimulus as a resurgent wave of Covid sweeps through Europe. Tuesday's economic data was neutral to slightly bearish for EUR/USD after German Jan GfK consumer confidence fell -0.5 to a 6-month low of -7.3, although that was slightly stronger than expectations of -7.6.
USD/JPY on Tuesday rallied moderately. The action by Congress to finally pass a pandemic relief package curbed the safe-haven appeal of the yen and gave USD/JPY a boost. A supportive factor for the yen was Tuesday's news that Japan's Nov machine tool orders were revised upward to +8.6% y/y from the previously reported +8.0% y/y, the biggest increase in 2-1/4 years.