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US Dollar Strengthens on Jobless Claims, Market Jitters

June 11, 2020 at 14:42 by Andrew Moran

Closeup of several USD100 notesThe US dollar is strengthening against its G10 currency rivals on Thursday as investors pour into the safe-haven asset amid a huge plunge in financial markets. With fears over a second wave of the coronavirus and a gloomy Federal Reserve, the bears were out in full force, helping the greenback retrace some of its 2020 gains. Jobs were not nearly as in focus as in previous weeks.

According to the Department of Labor, initial jobless claims came in at 1.542 million in the week ending June 6, beating the median estimate of 1.55 million. Last week, the number of Americans filing for first-time unemployment benefits surged 1.897 million.

Continuing jobless claims clocked in at 20.929 million, while the four-week moving average, which eliminates the week-to-week volatility, topped two million.

As economies begin reopening, the labor market is starting to rebound. Last week, the US government reported that the economy added 2.509 million new jobs and lowered the unemployment rate to 13.3% in May. The consensus was more than eight million lost positions and a jobless figure of 19.8%. Analysts are unsure if this is a continuing trend or if it is a blip in the radar.

Inflation data was also published on Thursday. The producer price index (PPI) rose 0.4% in May, up from the 1.3% decline in April. This was driven by a 40.4% spike in meat prices. The core PPI dipped 0.1% last month, up from the 0.3% drop in the previous month.

On Wednesday, the Federal Reserve completed its two-day June Federal Open Market Committee (FOMC) policy meeting. Fed Chair Jerome Powell left interest rates unchanged in the target range of 0% and 0.25%, and the institution also updated its economic projections. According to the US central bank, it does not anticipate any rate hikes until 2022 and it expects inflation will remain below 2% for three years. The Eccles Building also projects the gross domestic product (GDP) will contract 6.5% this year, while the unemployment rate will decrease to 9.3%. The Fed forecasts the GDP will rebound 5% next year, and the jobless rate will decline to 5.5% by the end of 2022.

In the broader financial market, investors are witnessing a sea of red ink. Despite the Fed pledging an accommodative policy with unlimited quantitative easing, Powell’s grim assessment did not spur market confidence. This sent traders seeking refuge in the safe havens, particularly the dollar and gold.

The US Dollar Index spiked 0.5% to 96.47, from an opening of 96.09. The index measures the greenback against a basket of currencies, and it has taken a beating over the last month as investors have had enough risk tolerance to buy equities and bet on emerging market currencies.

The USD/CAD currency pair advanced 0.85% to 1.3535, from an opening of 1.3414, at 14:35 GMT on Thursday. The EUR/USD edged up 0.12% to 1.1393, from an opening of 1.1380.

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