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Forex markets: Dollar dips on corona drug optimism, US plans to reopen

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The dollar ticked lower on Friday as investors, cautiously optimistic about the results of a drug trial and President Donald Trump's plan to reopen the economy, regained some appetite for risk.

Sentiment was boosted overnight by a media report detailing encouraging partial data from experimental drug trials on severely ill COVID-19 patients at a University of Chicago hospital.

News of Trump's plans to reopen the world's largest economy was also taken by investors as a positive sign, even after Thursday's jobless data showed a record 22 million Americans sought unemployment benefits in the last month.

The overnight moves toppled the dollar, which has closely tracked risk sentiment through the coronavirus crisis, from a week high, with the dollar index last down 0.16%. Other safe-haven assets like Treasury yields were lower, while the S&P 500 index rallied 1.3%.

The dollar also fell against the euro, the British pound and the Canadian dollar, though it strengthened against the Japanese yen and the Swiss franc , other safe-haven currencies.

"Stronger risk appetite put a brake on the greenback's rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

"Markets' heightened sensitivity to all things coronavirus sent U.S. stocks soaring at the expense of the safe bet greenback. Still, sustaining optimism has been challenging at best which suggests any decline in the dollar may only prove temporary."

The dollar remains on track for a small weekly gain after the safe-haven rally this week on dismal data from the United States on Wednesday and Thursday and a report that China's economy contracted in the first quarter, its first quarterly contraction since the country began publishing the data in 1992.

As the dollar fell, the euro rose 0.41%. The euro has fallen about 1.36% against the dollar already this month, facing its biggest monthly fall since July last year, after hitting its lowest against the Swiss franc in almost five years earlier this week.

With French President Emmanuel Macron warning that the European Union could collapse unless it finds a way to share the costs of the crisis, the coronavirus has exposed the vulnerability of the single currency.

"EUR's status might have been evolving since the COVID-19 outbreak but, going forward, we are bearish. This is because we expect European data to decouple further from US data, and that is partly due to the lack of a coordinated European fiscal response – which we remain concerned about," wrote Bank of America strategists in a note to clients.


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