U.S. dollar gains as steep global economic slump looms

NEW YORK (Reuters) – The dollar advanced on Wednesday, with markets staring at what looked likely to be one of the worst economic contractions in decades as the world confronts the coronavirus pandemic.

The greenback rose against the euro, sterling and most other major currencies as selling in global shares highlighted growing risks from the pandemic that has shown little sign of easing.

The dollar’s status as the world’s reserve currency makes it a natural safe haven, as evidence builds of a massive global economic downturn.

“We saw broad dollar-buying flows into month-end, but today’s flows are more haven-like,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto.

The game changer, he added, was U.S. President Donald Trump’s dire press briefing late Tuesday, where he warned Americans of “painful” two weeks ahead in fighting the coronavirus even with strict social distancing measures.

White House coronavirus coordinator Deborah Birx displayed charts demonstrating data and modeling that showed an enormous jump in deaths to a range of 100,000 to 240,000 people from the virus in the coming months.

“It feels like the U.S. is not doing enough to curb the spread,” Bregar said.

In mid-morning trading, the U.S. dollar index was up 0.6% at 99.550 =USD. It remained below multi-year peaks reached last month, before the Federal Reserve pumped more dollars into the system.

U.S. data showing private sector jobs lost for the month of March were much lower than expected, did not really change sentiment, as the survey was conducted in mid-March and did not really capture the full impact of the coronavirus.

The ADP National Employment Report on Wednesday showed private payrolls fell by 27,000 jobs last month, the first decline since September 2017, after advancing by an unrevised 183,000 in February. Economists polled by Reuters had forecast private payrolls falling by 150,000 jobs in March.

German and British factory output gauges on Tuesday slumped to multi-year lows, painting a similarly bleak picture to manufacturing data from Japan and South Korea overnight.

European and U.S. equity markets tumbled in morning trading, following from falls in Asia.

Analysts said coordinated action by central banks to boost dollar supply has helped calm extreme volatility, but money markets still need time to settle.

The euro fell nearly 1% against the dollar, dropping to $1.0924 EUR=EBS.

A slew of currencies – including the Australian, New Zealand and Canadian dollars, along with the South African rand – were down around 1% versus the greenback. AUD=D3 NZD=D3 CAD= ZAR= Sterling fared slightly better, last down 0.4% at $1.2370. GBP=D3.

Against the safe-haven yen, however, the dollar was down 0.3% at 107.29 yen JPY=EBS. But yen strength may not last long as Japan is also reeling from the crisis.

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