Dollar tanks as traders worry about more job losses

The US dollar traded lower against all of the major currencies today after jobless claims topped 3.2 million. We’ve never seen weekly jobless claims at these levels before – they are more than 4 times greater than the prior high set in October 1982 and double the 1.5 million forecast. In anticipation of this blowout report, Federal Reserve Chairman Jerome Powell gave a rare broadcast interview on NBC’s Today show this morning to reassure investors that the Fed is “not going to run out of ammunition” and they still have “policy room in other dimensions to support the economy.”

The market responded well to this message as stock futures shrugged off post data losses to close the NY session deep in positive territory. The US dollar ended the day down 1% against the Japanese Yen, Sterling, Australian and New Zealand dollars. USD/JPY dropped below 110. There’s strong support at 109 but we see the pair falling below 107.

Considering that the next few jobless claims reports could be even worse, with weekly claims well above five maybe seven million many investors are wondering if today’s rally in stocks is indicative of a bottom. It is hard to imagine that being the case as this is only the start of a long period of very high jobless claims. The sell-off in Treasury yields and decline in the US dollar indicates that investors are not convinced that Powell’s pledge to keep buying and the White House’s economic stimulus package will be enough to turn the markets around. 

With that said in the very near term, the rally could extend into Friday especially as the House will be taking up the White House’s Coronavirus Stimulus bill tomorrow and according to Nancy Pelosi, the $2 trillion dollar package is expected to pass with strong bipartisan support. US personal income and personal spending numbers are scheduled for release on Friday – while softer average hourly earnings growth and retail sales signal weakness, declines in February data have been modest as they do not reflect the true COVID-19 impact. 

Sterling rebounded as the Bank of England kept interest rates unchanged at a record low of 0.1% and its asset purchase program steady at GBP200 billion. Governor Bailey warned of a large and sharp downturn with the risk of longer term damage to the economy. The sharp decline in the exchange rate could also lead to a long term increase in inflation and as such, the central bank stands ready to respond further as necessary. UK retail sales dropped -0.3% last month with core spending falling -0.5%. These numbers were worse than expected but sharper declines are expected in the coming months.

Euro continued to march above 1.10 versus the US dollar. There’s little news to support the rally, leaving US dollar weakness the only reason for the move. Spain’s coronavirus death toll officially passed China’s, becoming the second highest in the world. The health system is collapsing underneath the weight of the disease and the economy will follow. In Italy, the death toll rose above 7,000 (Spain has 4,000) but the number of new cases fell for the fourth day in a row, raising hopes that the curve is flattening. Unfortunately the economic toll for both countries and the Eurozone as a whole will be severe, more so than other parts of the world. We continue to look for a decline in euro but the best opportunities may be found in euro crosses.