Dollar Bid After Trump's Dire Warning

The US dollar advanced against rival currencies in early trading on Wednesday, as global equities slumped. The grim reality of the coronavirus rattled investors after Donald Trump warned Americans to prepare for a “very, very painful two weeks”.

The White House projected that the coronavirus pandemic could claim 100,000 to 240,000 lives, even if social distancing precautions are followed. At a White House press briefing on Tuesday, Trump said: “I want every American to be prepared for the hard days that lie ahead.”

EUR/USD fell to fresh lows following news that Eurozone factory activity plummeted in March. IHS Markit’s final March manufacturing Purchasing Managers’ Index (PMI) fell to 44.5, marking the lowest reading since 2012. A PMI reading under 50 represents a contraction, when compared with the previous month. Shortly afterwards, Eurostat reported that the Eurozone unemployment rate dropped to 7.3% in February, down from 7.4% and beating expectations of 7.4%. This is the lowest rate recorded in the euro area since March 2008.

Risk-sensitive currencies such as the Australian dollar, New Zealand dollar and Canadian dollar lost ground against the greenback in Wednesday trading. Oil prices, a proxy for the global economic growth outlook, sit near the lowest levels in 18 years, weighing on the Canadian dollar. Canada is the world’s fourth largest oil exporter and consequently, the Canadian dollar has a positive correlation with oil prices.

Investors now turn their attention to today’s ADP Non-Farm Employment Change report to gauge the impact of coronavirus on the US job market. The US employment report for March is due for release on Friday. On Tuesday, Goldman Sachs revised its economic projections downward, forecasting second-quarter gross domestic product to contract by 34% and unemployment to rise to 15% by the second half of 2020. However, it also sees GDP rising by 19% in the third quarter, marking a larger rebound than previously expected.