The dollar is flashing a warning sign to US policy makers — get a grip on the virus.
After hitting an all-time high in March, a gauge of the greenback has lost 10 per cent of its value, with declines accelerating in recent weeks as infections spread seemingly unchecked across the nation.
Much of the sell-off has come during New York trading hours, suggesting domestic investors are closing out bets on US strength and spurring renewed questions about the supremacy of the dollar. Meanwhile, a popular model that’s guided dollar traders for the past two decades has warped.
It’s a rapid reversal in fortune. Early on in the pandemic, the dollar soared after investors sought safety in US assets like Treasuries while the virus stormed through Europe. But with cases now exploding at home, the ineffectual American response to the disease has become a millstone for the currency, spurring concern about lasting damage to the US economy that could keep interest rates and growth low for years.
“What people are most desperately waiting for is good news on virus control, that I think is number one,” said Stephen Jen, chief executive at Eurizon SLJ Capital. “The currency bet is mainly a bet on relative control of the virus, not reflecting the fundamental strength of the economies in question.”
The US government’s handling of the pandemic — which contrasts with the euro area’s progress in containing infections — is now the key driver of the greenback, dictating more conventional spurs of the currency, such as relative growth or monetary policy.
The dollar’s losses have often deepened during the US trading day, suggesting investors were selling after the latest virus figures were released. Speculators are now the most short since May 2018, after betting on strength for almost all of last year.
Still, prior to the dollar’s slump to a two-year low in July, Mr Jen was bullish. A pioneer of the so-called dollar smile theory — which posits that the dollar will gain as a result of either US growth exceeding that of other nations or during risk aversion — Mr Jen predicted in June that the currency would bounce back as the US economy rebounded.
Instead, the dollar has languished as rising infections simultaneously put the kibosh on a boost for growth and sapped appetite for the currency as a haven. California, Texas and Florida posted a record number of daily coronavirus deaths last week, while New Jersey slowed its reopening.
“The key assumption I was making, which turned out not to be correct, was that the US would sort itself out after a difficult period,” Mr Jen said.
The euro area has only outperformed the US in eight years since 1992, according to IMF data, but 2020 is on that track.
American gross domestic product suffered its deepest quarterly contraction since at least the 1940s in the three months through June, a release showed Thursday. While Europe’s economy was also eviscerated, with output shrinking to levels not seen since 2005, recent data show signs of a rebound as lockdowns ease across the region, and governments — so far — keep a lid on new infections.
That hasn’t been lost on the Federal Reserve, with chairman Jerome Powell saying after the central bank’s latest meeting that the path forward for the US economy will largely depend on America’s success in “keeping the virus in check.”
While policy makers have not explicitly linked rates to controlling Covid-19, the broader effort to curb the pandemic is influencing the outlook for both monetary policy and economic growth.
“I’m much more confident about the ‘left’ side of the smile: that is, the dollar performing in a risk-off environment, than I am on the other side, which is classically driven by a US economic outperformance,” said Ross Hutchison, investment director for Standard Life Investments.
But others aren’t convinced that even this side of the framework holds up. The dollar smile has flattened and turned into a painful “grin,” according to Calvin Tse, a foreign-exchange strategist at Citigroup, with the flood of liquidity unleashed by the Fed diminishing the likelihood of a sudden rush to the dollar in a risk-off scenario.
While Mr Tse doesn’t rule out gains for the dollar, any haven rally is likely to be shallower than in previous years thanks to these measures, while the possible extent of depreciation remains the same.
Meanwhile, in the event that US growth returns, aggressive rate cuts have enhanced foreign investors’ appetite for hedging dollar exposure when buying Treasuries, further hurting the case for the dollar to strengthen, he wrote in a report July 29.
For some, then, it’s time to better reflect the influence of the virus in their strategies. Paresh Upadhyaya, money manager at Amundi Pioneer Asset Management, which has $78 billion (Dh286bn) under management, says accounting for the virus has taken on a bigger role in shaping his view of the dollar and the economy.
To keep tabs on the virus’s ongoing impact Mr Upadhyaya has created a spreadsheet of data points, including activity at airport security checkpoints, restaurant reservations, small business openings, small business revenue and employment. He also tracks traditional data on manufacturing and services, and uses mobility data produced by Apple and Google parent Alphabet to gauge state reopenings.
“As cases in the US have picked up, that’s a flag for the dollar,” Upadhyaya said. “Because currency is the perfect reflection of relative value, we use that to gauge which region is having a better handle over the virus.”
What is the Supreme Petroleum Council?
The Abu Dhabi Supreme Petroleum Council was established in 1988 and is the highest governing body in Abu Dhabi’s oil and gas industry. The council formulates, oversees and executes the emirate’s petroleum-related policies. It also approves the allocation of capital spending across state-owned Adnoc’s upstream, downstream and midstream operations and functions as the company’s board of directors. The SPC’s mandate is also required for auctioning oil and gas concessions in Abu Dhabi and for awarding blocks to international oil companies. The council is chaired by Sheikh Khalifa, the President and Ruler of Abu Dhabi while Sheikh Mohamed bin Zayed, Abu Dhabi’s Crown Prince and Deputy Supreme Commander of the Armed Forces, is the vice chairman.
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
Read more about the coronavirus
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
New Zealand 57-0 South Africa
Tries: Rieko Ioane, Nehe Milner-Skudder (2), Scott Barrett, Brodie Retallick, Ofa Tu'ungfasi, Lima Sopoaga, Codie Taylor. Conversions: Beauden Barrett (7). Penalty: Beauden Barrett
Terminal High Altitude Area Defense (THAAD)
What is THAAD?
It is considered to be the US' most superior missile defence system.
Production:
It was first created in 2008.
Speed:
THAAD missiles can travel at over Mach 8, so fast that it is hypersonic.
Abilities:
THAAD is designed to take out projectiles, namely ballistic missiles, as they are on their downward trajectory towards their target, otherwise known as the "terminal phase".
Purpose:
To protect high-value strategic sites, such as airfields or population centres.
Range:
THAAD can target projectiles both inside and outside of the Earth's atmosphere, at an altitude of 93 miles above the Earth's surface.
Creators:
Lockheed Martin was originally granted the contract to develop the system in 1992. Defence company Raytheon sub-contracts to develop other major parts of the system, such as ground-based radar.
UAE and THAAD:
In 2011, the UAE became the first country outside of the US to buy two THAAD missile defence systems. It then deployed them in 2016, becoming the first Gulf country to do so.
MATCH INFO
What: India v Afghanistan, first Test
When: Starts Thursday
Where: M Chinnaswamy Stadium, Bengalaru
FIGHT INFO
Men’s 60kg Round 1:
Ahmad Shuja Jamal (AFG) beat Krisada Takhiankliang (THA) - points
Hyan Aljmyah (SYR) beat Akram Alyminee (YEM) - retired Round 1
Ibrahim Bilal (UAE) beat Bhanu Pratap Pandit (IND) - TKO Round 1
Men’s 71kg Round 1:
Seyed Kaveh Soleyman (IRI) beat Abedel Rahman (JOR) - RSC round 3.
Amine Al Moatassime (UAE) walk over Ritiz Puri (NEP)
Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
More from Neighbourhood Watch:
KILLING OF QASSEM SULEIMANI
Killing of Qassem Suleimani
The five pillars of Islam
The specs
AT4 Ultimate, as tested
Engine: 6.2-litre V8
Power: 420hp
Torque: 623Nm
Transmission: 10-speed automatic
Price: From Dh330,800 (Elevation: Dh236,400; AT4: Dh286,800; Denali: Dh345,800)
On sale: Now
The biog
Name: Abeer Al Shahi
Emirate: Sharjah – Khor Fakkan
Education: Master’s degree in special education, preparing for a PhD in philosophy.
Favourite activities: Bungee jumping
Favourite quote: “My people and I will not settle for anything less than first place” – Sheikh Mohammed bin Rashid.
GROUPS
Group Gustavo Kuerten
Novak Djokovic (x1)
Alexander Zverev (x3)
Marin Cilic (x5)
John Isner (x8)
Group Lleyton Hewitt
Roger Federer (x2)
Kevin Anderson (x4)
Dominic Thiem (x6)
Kei Nishikori (x7)
NYBL PROFILE
Company name: Nybl
Date started: November 2018
Founder: Noor Alnahhas, Michael LeTan, Hafsa Yazdni, Sufyaan Abdul Haseeb, Waleed Rifaat, Mohammed Shono
Based: Dubai, UAE
Sector: Software Technology / Artificial Intelligence
Initial investment: $500,000
Funding round: Series B (raising $5m)
Partners/Incubators: Dubai Future Accelerators Cohort 4, Dubai Future Accelerators Cohort 6, AI Venture Labs Cohort 1, Microsoft Scale-up
Sinopharm vaccine explained
The Sinopharm vaccine was created using techniques that have been around for decades.
“This is an inactivated vaccine. Simply what it means is that the virus is taken, cultured and inactivated," said Dr Nawal Al Kaabi, chair of the UAE's National Covid-19 Clinical Management Committee.
"What is left is a skeleton of the virus so it looks like a virus, but it is not live."
This is then injected into the body.
"The body will recognise it and form antibodies but because it is inactive, we will need more than one dose. The body will not develop immunity with one dose," she said.
"You have to be exposed more than one time to what we call the antigen."
The vaccine should offer protection for at least months, but no one knows how long beyond that.
Dr Al Kaabi said early vaccine volunteers in China were given shots last spring and still have antibodies today.
“Since it is inactivated, it will not last forever," she said.
AUSTRALIA SQUAD
Steve Smith (capt), David Warner, Cameron Bancroft, Jackson Bird, Pat Cummins, Peter Handscomb, Josh Hazlewood, Usman Khawaja, Nathan Lyon, Shaun Marsh, Tim Paine, Chadd Sayers, Mitchell Starc.
ESSENTIALS
The flights
Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.
The hotels
Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.
The tours
A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages.
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
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The%20specs
%3Cp%3E%3Cstrong%3EPowertrain%3A%20%3C%2Fstrong%3ESingle%20electric%20motor%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E201hp%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E310Nm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESingle-speed%20auto%0D%3Cbr%3E%3Cstrong%3EBattery%3A%20%3C%2Fstrong%3E53kWh%20lithium-ion%20battery%20pack%20(GS%20base%20model)%3B%2070kWh%20battery%20pack%20(GF)%0D%3Cbr%3E%3Cstrong%3ETouring%20range%3A%20%3C%2Fstrong%3E350km%20(GS)%3B%20480km%20(GF)%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh129%2C900%20(GS)%3B%20Dh149%2C000%20(GF)%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%3C%2Fstrong%3E%20Now%3C%2Fp%3E%0A
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
'Saand Ki Aankh'
Produced by: Reliance Entertainment with Chalk and Cheese Films
Director: Tushar Hiranandani
Cast: Taapsee Pannu, Bhumi Pednekar, Prakash Jha, Vineet Singh
Rating: 3.5/5 stars
The five pillars of Islam
UAE currency: the story behind the money in your pockets
Day 3 stumps
New Zealand 153 & 249
Pakistan 227 & 37-0 (target 176)
Pakistan require another 139 runs with 10 wickets remaining
The biog
Simon Nadim has completed 7,000 dives.
The hardest dive in the UAE is the German U-boat 110m down off the Fujairah coast.
As a child, he loved the documentaries of Jacques Cousteau
He also led a team that discovered the long-lost portion of the Ines oil tanker.
If you are interested in diving, he runs the XR Hub Dive Centre in Fujairah
