- The US reported a leap to 3.283 million jobless claims in the wake of the coronavirus crisis.
- The figures may continue rising as lockdowns spread.
- There are three reasons why it is positive for the dollar.
Unemployment is engulfing the US – weekly jobless claims jumped to 3.283 million, an increase of 1,053%. The four-week moving average is near one million, also surpassing the worst since the Great Financial Crisis.
And it may get worse. Additional states and cities are announcing lockdowns or other social distancing restrictions. Moreover, several states have been having a hard time processing all the claims. An increase to four or five million cannot be ruled out.
The initial market reaction has been muted, as traders were bracing for a horrible outcome. However, this may have a positive impact on the US dollar, due to its safe-haven status.
1) The Fed is done for now: Contrary to what Jerome Powell, Chairman of the Federal Reserve said, the central bank has little ammunition left. Just on Monday, the Fed announced open-ended QE. How can the Fed outdo itself after announcing unlimited action?
2) Government stimulus may be insufficient: The Senate had a hard time approving a massive $2 trillion package – yet to be approved by the House – and it may already be insufficient. It seems that despite all the bipartisan efforts, politicians are not up to speed with reality. Failure to speed up efforts – especially support for workers – nay further exacerbate the situation. The best thing Washington could do would be to put all those unable to work on vacation – stopping the bleeding of unemployment.
3) More impatience from the president: Donald Trump is surely watching the data and worrying. He already expressed his desire to see lockdowns end by Easter – in less than three weeks. He does not want the "cure to be worse than the disease." Such figures may trigger further impatience, in turn hindering efforts to fight the disease.
Overall, coronavirus is taking a heavy toll on the US labor market, which offers few protections. Things may get worse before they get better, and the dollar – due to its safe-haven status – has room to rise.
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