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Dollar Consolidates Amid Virus, 2nd Wave

The U.S. dollar was marginally lower in early European forex trading on Monday. It is consolidating after hitting a two-week high against its major peers overnight. There are growing fears about a second wave of coronavirus infections.

The U.S. Dollar Index stood at 100.248, essentially flat from late Monday. It was earlier climbing to 100.513, a two-week high. 

EUR/USD gained 0.1% to 1.0817 and GBP/USD edged 0.1% lower to 1.2323. Meanwhile,USD/JPY dropped 0.1% to 107.55.

Countries around the world gradually ease restrictions in an effort to restart their economies. But investors are becoming anxious about a second wave of infections.

The central Chinese city of Wuhan, where the pandemic originated, reported five new cases on Monday. It was its first new set of cases since the country lifted the lockdown. 

South Korea has a new spike in cases as well.

In Europe, Germany’s Robert Koch Institute reported that the “reproduction rate” had risen to 1.1. That is the number of people each person infected with the coronavirus goes on to infect. This means that any rate above 1 means the virus is spreading exponentially. 

The Dollar and Negative Rates

The greenback was also buoyed by a steepening U.S. yield curve. Fed officials talked down the prospect of negative rates.

St. Louis Fed President James Bullard said Monday that negative rates stateside would be “problematic” and counterparts were similarly dismissive. This is in reference to Atlanta and Chicago, Raphael Bostic, and Charles Evans.

Two more Fed speakers, Philadelphia’s Patrick Harker and Cleveland’s Loretta Mester have scheduled to talk late Tuesday. They are likely to weigh in on the issue.

One of the biggest losing currencies in the FX markets on Tuesday was the Australian dollar. It has given up its recent gains after China suspended meat imports from four Australian abattoirs. This is fueling concerns that escalating tensions between the two nations are damaging Australia’s most important trading relationship.

AUD/USD traded 0.3% lower at 0.6470.

Meanwhile, in Asia, the dollar was up in forex. This was amid U.S. Treasury yields and fears of a second wave of virus increasing demand for the USD.

South Korea reported 27 new cases for May 11 as it eased social distancing measures. The cases stemmed from a nightclub in Itaewon leading the government to postpone reopening high schools for the academic year.

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