By Peter Nurse
Investing.com – U.S. Dollar has seen demand in early European trade Thursday as risk appetite reigned on the back of Federal Reserve Chairman Jerome Powell’s sobering prospects for the U.S. economic growth and his decision based on negative interest rates.
02:55 ET (0655 GMT), the one that tracks the greenback against a basket of six other currencies stood at 100.37, up 0.1%. fell 0.1% to 1.0807, while down 0.3% to 1.2187.
Powell joined a list of makers to ward off the notion of negative U.S. rates in a webcast Wednesday. He also promised to use the U.S. central bank power as needed, but hinted that it might not be enough to avoid deep financial damage without more fiscal support.
The market is still priced for the effective Fed Funds rate to fall into negative territory next year, “but his comments could prevent the market from pricing an even lower Fed Fund rate,” analysts at Danske Bank said.
This extra fiscal support may prove difficult to get through Congress. Earlier this week, House Democrats proposed a new $ 3 trillion coronavirus bill, which includes funding for state and local governments and more direct stimulus payments to Americans. Republicans, however, have rejected the idea.
The latest weekly unemployment claims at. 08:30 ET (12:30 GMT) could well illustrate the need for more support, with claims for first-time unemployment benefits expected to reach 2.5 million. This would push the number of people requiring unemployment benefits to over 35 million levels since the coronavirus virus first hit.
This week, Goldman Sachs (NYSE 🙂 analysts revised their top estimate for the U.S. unemployment rate to 25%, up from 15%. The official rate in April came in at 14.7% last week. Job loss has hit poorer sections of the population hardest: Powell said 40% of families with income below $ 40,000 a year had lost a job, according to Fed analysis.
The second most important currency to gain thanks to this period of risk aversion has been the Japanese yen, and JPMorgan Chase (NYSE 🙂 sees the potential for more strength in the future.
02:55 AM ET traded 0.1% lower at 106.86.
“We now see the risk of multi-year yen strengthening,” analysts at JPMorgan said in a research note. “We expect the yen depreciation period (a sustained period of significant yen depreciation in real terms) started by Abenomics ending.”
The bank cited the return on deflation as a rising problem in Japan, as well as the record outflow of portfolio capital slowing as Japanese fund managers confront far lower bond yields abroad. In addition, Japan’s trade balance may receive a sustained boost from the fall in oil prices.
Elsewhere, it fell to a seven-week low amid growing fears that the Bank of England would also be forced to resort to negative interest rates. Fear of a hard Brexit by the end of the year, when the current transition period ends, is also weighing in a country that now has the highest virus death rate in Europe.
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