Dollar edges up as overnight optimism proves short-lived; euro falls

LONDON (Apr 17) - The dollar rose slightly Friday, after an overnight boost to risk sentiment quickly lost momentum and investors returned to a cautious stance about the economic impact of the coronavirus pandemic and lockdown measures.

Sentiment was boosted overnight by a media report detailing encouraging partial data from experimental drug trials on severe COVID-19 patients at the University of Chicago. More data is expected at the end of the month.

News of U.S. President Donald Trump’s plans to reopen the world’s largest economy was also taken by investors as a positive sign, even after Thursday’s jobless data showed a record 22 million Americans sought unemployment benefits in the last month.

The overnight moves toppled the dollar, which has closely tracked risk sentiment through the coronavirus crisis, from a week high, but the rebound proved short-lived with the dollar edging back towards its one-week high, up as much as 0.3% =USD by 10.30 GMT.

The safe-haven yen recovered somewhat to $107.76 JPY=EBS but the riskier New Zealand dollar NZD=D3 and Australian dollar AUD=D3 held on to their earlier gains, with the New Zealand dollar up 0.9% versus the U.S. dollar.

Though the greenback is headed for its smallest weekly change in almost two months, it is likely to be supported in the short term as any vaccine will take months to come to market while the economic costs from months-long lockdowns in the global economy is going to be huge.

“Optimism stemming from hope of lockdown reversals seems perhaps premature,” said Derek Halpenny, head of research for global markets EMEA at MUFG.

Furthermore, the coronavirus-related demand destruction in oil markets has the potential to broaden out into a risk-off mood in other asset markets if it continues, Halpenny said.

Reuters