Fears of a second wave of COVID-19 infections have increased demand for safe-haven assets, driving the US dollar to its best weekly gain in a month on Friday.
Markets this week have been focused on an uptick in cases of the novel coronavirus in many US states, as well as new infections detected in Beijing, raising fears of a return to global lockdowns. The world’s reserve currency, which made small advances in the North American session, gained 0.54 percent this week against a basket of currencies, its best performance since the middle of last month.
The US dollar index was up 0.18 percent to 97.61 in afternoon trade, close to its highest levels since June 2.
“With COVID-19 and how it relates to the economy, we know that this thing is not going to go away and we’re going to have to learn how to cope with this. So with that comes a bit of risk in the market,” said Juan Perez, senior foreign exchange trader and strategist at Tempus Inc. “There was this belief that the recovery would be strong economically, but there’s hesitation because it does seem like we have a lot of separation in terms of states.”
However, he added that the enormous effect on the US economy compared with the rest of the world would ultimately weigh on the US dollar, in spite of its safe-haven appeal.
The euro was slightly weaker, down 0.14 percent at US$1.119, after an EU summit, in which the bloc is seeking to bridge regional divisions over a 750 billion euro (US$838.3 billion) coronavirus recovery fund, got under way.
European Central Bank President Christine Lagarde told EU leaders that their economy was in a “dramatic fall” and called on the bloc to act to spearhead revival, diplomatic sources and officials said.
Sweden, Denmark, Austria and the Netherlands — the bloc’s so-called “frugal four” — say the proposed recovery fund is too big and the allocation of money not sufficiently linked to the pandemic.
“Hopes of a breakthrough on the recovery fund have been managed downwards recently, and the signs are instead pointing to an agreement no sooner than an as-yet unscheduled summit meeting in July,” Deutsche Bank analysts told clients in their morning note.
Austrian Chancellor Sebastian Kurz confirmed these expectations on Friday, saying he hoped an agreement could be reached in July, but that a key issue would be which countries should benefit most from the fund.
The British pound was down 0.35 percent at US$1.2385 after data showed that public borrowing hit a record high with debt exceeding economic output.
Meanwhile in Taipei, the New Taiwan dollar closed unchanged at NT$29.660 against US dollar the yesterday, up 0.34 percent from last week’s NT$29.762.
Turnover during the trading session totaled US$95 million.
The greenback opened at the day’s high of NT$29.670 and moved to a low of NT$29.570 before rebounding.
Taipei was the only foreign exchange market in the world to open yesterday to make up a lost trading session next week during the Dragon Boat Festival long weekend.
Additional reporting by staff writer, with CNA
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