Forex markets: Coronavirus in focus

The U.S. dollar stalled against most currencies on Monday but continued its rise versus the Japanese yen as investors digested the fact that the rate of deaths from coronavirus in Europe was slowing while deaths in Japan and elsewhere in Asia accelerated.

With traders getting back some of the “risk on” mood, the yen fell, while the Australian and New Zealand dollars, which tend to benefit from sharper risk appetite, rose.

“The FX implication is yen weakness as Japan’s virus situation worsens and equities bounce,” said Kit Juckes, Societe Generale’s macro strategist.

The greenback rose 0.7% to 109.38 yen, a 10-day high, while the Australian dollar rose 1.3% at 0.6071 per U.S. dollar.

The euro was neutral versus the U.S. currency at 1.0805 . An index which tracks the dollar against six major currencies was also flat at 100.68.

Juckes said the game-changer for the euro “would be a move towards some version of ‘Coronabonds’ at tomorrow’s Eurogroup meeting”.

“Absent that, I’m not sure the euro has much home-grown potential to bounce,” he said.

Euro zone finance ministers are likely to converge on Tuesday on three quick options to support the economy during the coronavirus epidemic.

Italy reported its lowest daily death toll for more than two weeks on Sunday. France also reported a slowing daily death toll, and Germany its fourth straight daily drop in new cases.

But Indonesia on Monday confirmed 218 new infections, the biggest daily jump since the first cases were announced a month ago.

Japan also will declare a state of emergency as early as Tuesday, media reported, as a shortage of beds and a rise in cases linked to hospitals push Tokyo’s medical system to the brink of collapse.

Speculators’ net short U.S. dollar positioning in the latest week touched its highest since May 2018, according to Reuters calculations and U.S. Commodity Futures Trading Commission data released on Friday.

As leveraged funds expect the U.S. currency to weaken, the cost to swap euros into dollars on a three-month basis eased, showing there is “less pressure” on euro, yen and sterling investors to fund dollar requirements, Monex Europe analyst Simon Harvey said.

Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 basis points, indicating that European borrowers are able to borrow the greenback at a discount.

This rate had swung to a 2011 European crisis-era high of more than 150 bps two weeks earlier.

“But the funding strain is still there,” Harvey said.

Elsewhere, the euro was up 0.1% versus the Swiss franc at 1.0569.

The amount of cash that domestic commercial banks hold with the Swiss National Bank (SNB) rose last week, data showed on Monday.

The pound was up 0.2% at $1.2292 and up 0.3% against the euro at 87.89 pence, having slipped overnight on reports that Prime Minister Boris Johnson had been hospitalized with persistent COVID-19 symptoms.