Daily Market Pulse

USD higher as risk aversion returns


The USD moved higher overnight as optimism that the Coronavirus was slowing seem to vanish and once again investors showed concern over the economic impact of the pandemic. Risk aversion once again had traders buying USD. After spending most of the trading day on the positive side, the DOW closed slightly lower yesterday, falling 26 points after being as high as 900 points higher during the day. Volatility remains the key factor in the equity markets. The dollar begins the day better bid against the EUR, GBP, JPY, and CAD. After beginning the overnight trading higher, US Treasury yields moved lower with the 10-year note trading at 0.788%, while the 30-year bond was trading at 1.3026%. Later this afternoon, the FOMC will publish their minutes from the March meeting. Traders will get to see what discussions took place before the Fed cut rates to zero for the first time since the 2008 financial crisis.


EUR/USD is trading lower this morning, as Eurozone finance ministers failed to reach an agreement on a joint response to the virus crisis. After meeting for most of the day, discussions ended and they will pick up again on Thursday. The director of WHO Europe, Dr. Hans Henri Kluge said earlier today that the virus outbreak is “still very concerning” in Europe. Spain and Sweden reported a rise in cases today. Economists in France and Germany are looking for contraction in their economies. The Bank of France forecast a probable 6% contraction in the economy and also implied that with every fortnight France continues it costs the economy 1.5%. German economic institutes paint a gloomier picture projecting contraction of nearly 10%. EUR is currently trading in the middle of the overnight range, but these projections and failure to meet an agreement on dealing with the virus will continue to weigh on the EUR.


GBP/USD is rallying over the last few hours as news reports on the condition of Prime Minister Boris Johnson seem to show improvement. He remains in critical condition but he has stabilized and while he has needed oxygen at some point he is not on a ventilator. The virus outbreak in the UK continues to rise, suffering its worst day yet. Foreign Secretary Dominic Raab, who is in charge of the UK while PM Johnson is in the hospital, has limited powers and his first major decision will come on Monday when the present UK lockdown expires. Virus updates during the day, especially those regarding the PM’s condition will dominate the GBP. 


USD/JPY is trading near overnight highs as the North American markets begin trading later this morning. Traders seem confused over whether or not to take on risk and there have been some “safe haven” trades placed on the books. Optimism turned to pessimism as higher death tolls were reported in New York and the UK. Technically the USD/JPY has room to test overnight support levels. Asian stock markets were mixed overnight with the Nikkei trading higher while the Hong Kong and Shanghai markets were lower. Japan’s 10-yer JGB yield was higher at 0.009%.


USD/CAD has moved lower over the last hour as oil prices steady near $32 per barrel. OPEC members are set to meet through teleconference on Thursday, with the hope that there can be a consensus reached regarding supply and the price war that is going on between Russia and Saudi Arabia. As oil prices move, so moves the Canadian dollar. If this conference can stabilize the price of oil, it will go a long way towards stabilizing the Canadian Dollar. Traders are expecting the Bank of Canada to ramp up additional QE to aid the Canadian economy. Aid from the central bank has been relatively light to this point.


China reported zero new cases in the Hubei province overnight and the government has lifted some restrictions in the province, allowing citizens to get back to work. The rest of the country is still reporting new cases of the virus but the good news from Hubei is considered good for risk sentiment. Analysts will continue to monitor these developments in Hubei and the rest of China.

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