Coronavirus Struggles Continue as USD Forex Market Regains Strength

• Euro Down as Virus Worries Persist
• US Dollar Off Lows as Stimulus Negotiations Continue
• Chinese Yuan Surges Higher on Rule Change

The Euro dropped back today against the US Dollar in early trading as many in the forex market waited to hear from ECB President Christine Lagarde who was speaking at an IMF event. This message was expected to be dovish and in line with previous statements, though she did not make any comment on monetary policy. This has helped pick the Dollar up from its recent lows while a sense of uncertainty around the proposed US stimulus package has also contributed. In Asia, the Chinese Yuan has seen a surge against the Dollar as well as in the stock market.

Eurozone Uncertainty Meets Dollar Rebound

ECB President Christine Lagarde did not directly address any monetary policy issues in her speech today. The general feeling though is that the road ahead looks tough for both the Euro and the Pound. This is driven largely by the resurgence that COVID-19 has seen throughout the bloc, and in the UK where a new tiered lockdown process is set to be unveiled.

Another strong indication that the Euro may be set to take a weak turn can be found through looking at new inflation data. Eurozone inflation figures have dropped significantly off the pace of their US counterparts. This would suggest a slower economic recovery in Europe than the United States.

Slow Progress on Stimulus as USD Returns to Form

Despite making an improved offer of a $1.8 trillion stimulus package, negotiations remain slow between the Republicans and Democrats. This has reduced the likelihood of a deal before the election to very slim. House Speaker Nancy Pelosi has commented that the offer was “one step forward, two steps back” from Republicans.

Overall, this indecisiveness forex brokers have noted a continuing move back to the safety of the US Dollar. The results of this rebound to Dollar strength can be viewed in forex markets around the world, and despite another strong opening in US Markets, it looks as though the economy will go without further stimulus at least for now.

Yuan Hits New Heights Against US Dollar

New rules introduced by the Peoples Bank of China, making it cheaper to short the Chinese Yuan have caught the attention of those trading forex around the world. The change will see the reserve requirements ratio drop to zero from 20% on some forex forward trading. The immediate result on Monday was a peak in the Yuan rate against the US Dollar. This rose to a 17-month high above 6.72.

The move will be welcomed by those shorting the Yuan, and is believed to be an effort to curb appreciation of the currency ahead of the US Presidential election. A victory for Joe Biden which would potentially lead to improving relations between the US and China, could see the Yuan appreciate to a level which may be uncompetitive to trade, while loosening restrictions on trade would work to balance these interests. It is also an indication that China has no fear of currency weakness at present.