The dollar is on track for its biggest weekly fall in more than a decade on Friday as a series of stimulus steps around the world, including a $2.2 trillion U.S. package, calmed a panic over a global recession following the coronavirus outbreak.
Data showing an unprecedented rise in U.S. jobless claims underscored the virus’ devastating impact on the economy, but subsequent rise in Wall Street shares raised hopes a torrent of selling in risk assets may have run its course for now.
The dollar dropped to 109.42 yen JPY=, shedding 1.44% overnight while the euro also jumped 1.40% on Thursday and last stood at $1.1025 EUR=.
The biggest mover among major currencies was sterling, which rose 2.8% overnight before giving up part of that gain in early Asian trade. The British pound last stood at $1.2183 GBP=D4.
An easing in dollar funding conditions is helping to reduce demand for the dollar.
The number of Americans filing claims for unemployment benefits surged to a record of more than 3.28 million last week as strict measures to contain the coronavirus pandemic unleashed a wave of layoffs.
While that eclipsed the previous record of 695,000 set in 1982 and was up 3 million from last week, it was below investors’ worst fears.
The focus stayed on an unprecedented $2.2 trillion stimulus expected to be approved by the U.S. House of Representatives on Friday.
The dollar’s index against six other major currencies =USD lost 1.5%, its biggest daily fall in almost four years.
So far this week it is down 2.9%. If sustained by the end of U.S. trade, that would mark the biggest weekly decline since 2009, underscoring the currency market’s extreme volatility after last week racking up its biggest weekly gain since the global financial crisis more than a decade ago.
Highly choppy trade could continue towards the end of month, when there tend to be large flows from corporate and investors to hedge their currency exposures.
In particular, many asset managers may need to adjust their currency hedge positions after wild swings in global share prices.
The dollar’s rises until last week, in particular against the Australian dollar and the New Zealand dollar were primarily driven by such currency hedge adjustment, said analysts at National Bank of Australia in report.
“We can well believe that we are for an extremely rocky ride in the currency markets between now and month end,” they said. “Some will not yet have adjusted, and some will now find themselves under-hedged given the big equity reversal so far this week. And, some may be looking to implement changes to strategic hedge ratios at the same time. Buckle up.”