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Forex News Roundup For July 17th, 2020

Covid-19 Vaccine Optimism Hurts US Dollar, GBP Falls After Strong Run

Currency Converter Calculator's Forex News Roundup aims to keep currency traders and enthusiasts abreast of the latest FX news and analysis, with concise and easy to understand information on major currencies and also less liquid Emerging Market (EM) currencies.

In recent days, we have seen the US Dollar (USD) take a hit due to increased optimism surrounding the development of a Covid-19 vaccine, while the Great British Pound (GBP) ended its two weeks of gains against other major currencies.

USD Falls On Vaccine Optimism

The US Dollar had a bad start to week due to optimism about a Covid-19 vaccine being created and distributed to curb the spread of coronavirus by making most of the population immune to the disease. This would, in turn, allow economies to open up more quickly as lockdowns and social distancing measures may no longer be necessary.

Specifically, this optimism stemmed from American pharmaceutical company Gilead Sciences' remdesivir antiviral drug showing promise, in addition to a few others of the around two dozen potential Covid-19 vaccines also making progress.

This spelled bad news for the Greenback because, as a hard currency and the safe-haven asset of choice for many investors, the USD becomes less attractive when positive economic news comes to light or when the fight against coronavirus takes a turn for the better.

This is because investors become more optimistic in response to such developments, causing demand for the USD to fall as funds and other investors quickly favor riskier and potentially more lucrative investments, such as stocks and Emerging Market currencies.

We have seen this negative correlation between the US Dollar and the factors mentioned above stand true over the course of the Covid-19 pandemic, particularly between the Greenback and the US equity markets, such as the NASDAQ and the DOW.

Sterling Down After Strong Run

The Great British Pound ended its strong two week run earlier in the week, though most FX analysts didn't attribute the end of Sterling's impressive rally to a particular event or policy shift.

However, some suggested the Pound's fortnight-long rally came to an end against many of its currency rivals due to traders trying to take advantage of its current strength by shorting it in the hope of Brexit negotiations and coronavirus-related uncertainty driving down its value over the coming weeks.

Earlier, Bank of England (BoE) Governor Andrew Bailey, who replaced Mark Carney earlier this year, said the economy was gradually opening up and returning to normal.

However, he warned that there was still a long way to go, and they "are very worried about jobs," drawing attention to the millions of Brits. The latter have been made redundant or furloughed due to the pandemic bringing many industries to a standstill.

Sectors such as tourism, aviation, hospitality and brick, and mortar businesses have been hit particularly hard – in the UK and across the world following the implementation of lockdowns and social distancing measures designed to limit the transmission of Covid-19 throughout the population.

The GBP depreciated by more than 1 percent against the Euro (EUR) on Monday. It has remained relatively flat since then, failing to make up the lost ground and remaining vulnerable to Brexit-related uncertainty, which could worsen the state of Britain's economy.

A Quick Summary

  • The Greenback had a bad start to the week due to falling investor demand amid growing optimism of a Covid-19 vaccine being developed and rolled out to combat Covid-19 effectively.
  • The US Dollar has depreciated in response to similar developments – in addition to positive or better than expected economic news – throughout the pandemic, as it is a safe haven asset, like gold.
  • Meanwhile, the Great British Pound also lost ground against other major currencies, such as the Euro, with traders opportunistically shorting Sterling in the hopes of capitalizing on potential adverse Brexit news or a worsening of the Covid-19 pandemic in the country.