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US Dollar May Rise on Jobless Data as Fed Warns of Long-Term Impact

US Dollar May Rise on Jobless Data as Fed Warns of Long-Term Impact

2020-05-14 07:00:00
Dimitri Zabelin, Analyst
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US Dollar, Fed, Coronavirus, US Jobless Claims Data – Talking Points

  • US Dollar may rise if jobless data reinforces fear of slow and painful recovery
  • Risk-off tilt amplified after Fed Chairman Jerome Powell’s alarming warning
  • GBP/USD consolidation period may be coming to an end – is a selloff ahead?

Asia-Pacific Recap

US equity futures aimed modestly higher early into Asia’s Thursday trading session while APAC stocks traded mixed. FX markets appeared to reflect a shy risk-off tilt as the Japanese Yen edged slightly higher against its G10 counterparts. The Australian Dollar ticker lower after local jobs data printed worse-than-expected figures, though markets may have already priced this in given commentary from RBA officials. Read the full report here.

US Dollar May Rise on Jobless Data

The US Dollar may rise if initial jobless claims data is higher than expected, though even if the figures fall in line with expectations the implications of a greater volume of unemployed citizens could sour sentiment. The unemployment rate in the US is hovering a little over 14 percent, with policymakers like St. Louis Fed President James Bullard warning that it could climb to as high as 30 percent in the months ahead.

Having said that, on Wednesday, Fed President Jerome Powell said that unemployment may peak in the next month or so, but raised concerns about the long-term economic harm done by Covid-19. He warned that the outlook remains highly uncertain and downside risks continue to be significant, with expectations that it may take a few more months for a recovery to take shape.

Mr. Powell also poured cold water on traders pricing in negative interest rates after he said that the FOMC’s position on the matter has not changed and it is not something monetary authorities are looking at. The Chairman noted that more fiscal aid may be needed but stopped short of officially endorsing a specific plan. If he did, it could be read as an independent institution weighing in on what is ultimately a political question.

To get more insight, follow me on Twitter @ZabelinDimitri

As the new epicenter of the coronavirus, the US has over 1.3 million confirmed cases, with the reported global total at 4.3 million. A prolonged lockdown period could increase the number of lost businesses and undercut the recovery once the virus is under control. These fears may be reinforced if the jobless claims data comes in higher than the expected 2500k figure and may push haven-linked assets like the US Dollar higher.

Coronavirus Cases

Chart showing coronavirus cases

Source: Johns Hopkins CSSE

GBP/USD Analysis

Initially, GBP/USD appeared to have been forming a bearish chart pattern as a Head and Shoulders – that no longer appears to be the case. Having said that, the pair’s consolidative nature following the selloff in March suggest GBP/USD is not yet committed to any directional bias, though its recent dip into the support range between 1.2283 and 1.2156 may indicate traders are tilting more bearish.

GBP/USD – Daily Chart

Chart showing GBP/USD

GBP/USD chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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