Dollar and Yen Strengthen; Risk Appetite Hit by Trump Covid News

The dollar pushed higher in early European trade Friday, along with the Japanese yen, as U.S. President Donald Trump testing positive for the Covid-19 virus hit risk sentiment, resulted in demand for safe haven currencies.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.797, while USD/JPY fell 0.4% to 105.11, its lowest level this week.

Elsewhere, EUR/USD fell 0.1% to 1.1732, GBP/USD dropped 0.2% to 1.2870, while the risk-sensitive AUD/USD fell 0.3% to 0.7160.

President Donald Trump said on Friday, via a tweet, that he and his wife Melania had tested positive for the coronavirus, and were going into quarantine. This follows Hope Hicks, a trusted adviser, also testing positive earlier on Thursday.

“We’ve seen a massive risk-off response with shares down, futures down, dollar is up, yields down. So it’s a very clean risk-off response and that makes sense,” said Ilya Spivak, head Asia Pacific strategist at DailyFX, in a Bloomberg report. “Investors don’t know what to do with it so they’re just dumping and going to cash.”

The virus is making broader inroads across the U.S. as seasonal factors start to work in its favor again. New cases of Covid rose in 27 out of 50 U.S. states in September compared with August, according to a Reuters analysis. Infections are up 4.4% on a seven-day rolling average.

“What this does say is that the risk of the virus picking up is still quite real,” said Bank of Singapore FX analyst Moh Siong Sim, in a Reuters report. “The U.S. infection rate is not going down anymore. This reminds people that the virus is still around.”

Risk sentiment had already been damaged by the idea the new U.S. fiscal stimulus package was stalled in Washington. The House passed a $2.2 trillion Democrat-only fiscal stimulus package late Thursday, but this bill is extremely unlikely to pass through the Republican-dominated Senate

At the same time the latest block of economic data has tended to suggest that the U.S. economic recovery could be stagnated. With this in mind, attention will also turn to the official U.S. jobs report for a gauge on the strength of the labor market in the world’s largest economy.

“Evidence from high-frequency data, such as payrolls tracking figures from Homebase suggests a plateauing in private sector employment while purchasing managers’ indices suggest only modest gains,” wrote analysts at ING, in a research note.

News of Trump’s condition has overshadowed what was set to be the centerpiece of the day’s action – the release of the U.S. labor market report at 8:30 AM ET (1230 GMT).