Dollar falls on COVID-19 treatment hope and soft inflation data

Market Review - 12/05/2020  23:41GMT  

Dollar falls on COVID-19 treatment hope and soft inflation data

The greenback erased initial gains made in Asian morning and ended lower against majority of its peers, except for sterling on Tuesday after the World Health Organization announced potential treatment that may limit the severity or length of the coronavirus as well as soft U.S. inflation data.  
  
Reuters reported the World Health Organization said on Tuesday that some treatments appear to be limiting the severity or length of the COVID-19 respiratory disease and said the body is focusing on learning more about four or five of the most promising ones.    Also, the U.S. consumer prices dropped by the most since the Great Recession in April, weighed down by a plunge in demand for gasoline and services including airline travel as people stayed home during the coronavirus crisis.       
The Labor Department said on Tuesday its consumer price index tumbled 0.8% last month after falling 0.4% last in March. That was the largest decline since December 2008, and marked the second straight monthly decrease in the CPI.    In the 12 months through April, the CPI gained 0.3% after increasing 1.5% in March. Economists polled by Reuters had forecast the CPI falling 0.8% in April and rising 0.4% year-on-year.   
  
Versus the Japanese yen, despite Monday's rally to a 2-week high of 107.76 in New York, dollar met renewed selling at 107.69 in Australia and fell to 107.36 in Asia on unwinding of recent short yen positions before recovering to 107.63 in European morning but only to fall again to session lows of 107.13 in New York on usd's broad-based weakness as well as fall in U.S. Treasury yields.  
  
Although the single currency briefly dipped to 1.0785 at Asian open, the pair erased its losses and gained to 1.0827 in European open, and later rallied to session highs of 1.0884 in New York morning after release of soft U.S. inflation data before retreating to 1.0846 on profit-taking.  
  
The British pound went through a roller-coaster session. Although cable initially dropped from 1.2343 in Australia to 1.2288 at Asian open, price erased its losses and gained to 1.2350 in European morning before retreating to 1.2305 due partly to comments from Bank of England Deputy Governor Ben Broadbent but only to rally to intra-day high of 1.2377 at New York open on active selling in usd due to soft U.S. inflation data. However, the pair then tumbled to a near 3-week trough of 1.2256 on sterling's broad-based weakness as coronavirus death toll continued to rise in the UK and traded at 1.2356 near the close.  
  
Reuters reported Bank of England Deputy Governor Ben Broadbent said the central bank would need to take a balanced view of whether cutting interest rates below zero would help Britain's economy cope with the coronavirus shutdown or have negative consequences.     While cutting rates further could stimulate demand, they could but also have side effects for banks whose lending is vital for the economy, he said.   
  
In other news, Reuters reported the Phase 1 trade deal between China and the United States will benefit for both countries and the world, the Chinese foreign ministry said on Tuesday after being asked whether China is considering renegotiating the deal.   
  
Data to be released on Wednesday :  
  
New Zealand food price index, RBNZ interest rate decision, UK BRC retail sales, GDP, industrial output, manufacturing output, construction output, trade balance, NIESR GDP estimate, Japan current account, trade balance, economy watchers current, economy watchers outlook, Australia consumer sentiment, wage price index, EU industrial production, and U.S. MBA mortgage applications, PPI, core PPI.