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On Tuesday, the greenback strengthened against its major counterparts. On Wednesday, the US dollar continues to gain ground.
Market participants are still focusing on the news about the spread of the coronavirus infection across the world. Information about a significant increase in COVID-19 cases in the United States and the reintroduction of quarantine restrictions in some other countries undermine hopes for a V-shaped recovery of the global economy, as well as contribute to rising demand for safe-haven assets, including the greenback.
"The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus," said foreign exchange strategists at Daiwa Securities.
Recently, a number of representatives of the US Federal Reserve System (FRS) expressed concern that an increase in COVID-19 cases could harm economic growth in the United States at the same time as stimulus measures started bearing fruit.
"The Fed's comments on the economy sound somber. There's reason to worry because it is hard to see when the virus will be brought under control." - noted in Daiwa Securities.
On Tuesday, the most important event in the foreign exchange market was the decision of the Australian government to tighten quarantine restrictions. According to the head of the Department of the Treasury, the lockdown is jeopardizing the economic recovery progress. Moreover, the country might lose around $1 billion on a weekly basis. Even though the Reserve Bank of Australia (RBA) believes that the economic consequences of the pandemic will be less severe than forecast, increased uncertainty led to a depreciation of the Australian dollar. Experts suggest that new measures to contain COVID-19 in the country will help return the AUD/USD pair to the level of 0.66.
There are fears that other countries may repeat the fate of Australia. In March, the country's government faced the first wave of the coronavirus infection and was able to smooth out the incidence curve by imposing strict quarantine measures. In the case of another outbreak of COVID-19, other countries may follow in Australia's footsteps.
This week, the EUR/USD pair continues to show uncertain dynamics: the pair is either decreasing or growing.
According to experts at the UOB, the pair should close above the upper boundary of the side channel at 1.1170–1.1380 in order to target the high of the previous month at 1.1422. As for now, the likelihood of this scenario is minimal. However, the probability will increase if the EUR/USD pair remains above 1.1240 in the coming days.
The euro is placed under pressure amid political disagreements within the EU regarding the formation of a fund to save the region's economy. Recently, Christine Lagarde, President of the European Central Bank, expressed doubts that EU leaders will be able to agree on all disputed issues by July 18. Christine Lagarde believes that an agreement on this issue will be reached only by the end of this month.
The GBP/USD pair failed to rise to the area of 1.2570 and pulled back from Tuesday's three-week highs.
On Wednesday, Rishi Sunak, British Chancellor of the Exchequer, is expected to announce new economic support measures, including distributing £500 vouchers for each adult and £ 250 per child to increase spending in the sectors most affected by the pandemic.
Traders are also focused on Brexit negotiations between London and Brussels which may influence further movement of GBP/USD.
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