The number of US citizens applying for unemployment benefits (Unemployment Claims) surged. Noted, more than three million people can not get income because they have to isolate themselves in their respective homes to avoid the spread of the Coronavirus.
The US Department of Labor reported that as many as 3,283,000 people filed for Unemployment Claims over the past week. This fantastic record is the highest since 1967. Unemployment Claims are estimated to only increase by around 1 million people.
The accommodation and food service sector were hardest hit by the Corona pandemic. Followed later by the social service sector and health, arts, entertainment and tourism, transportation, and manufacturing industries. Pennsylvania became the region with the most contributors to unemployment claims, reaching more than 378,908 people.
"This is record-breaking data. The numbers send turmoil in the market. If the numbers continue (increase) within the next three or four weeks, more financial support is needed. Monetary policy from the Federal Reserve is starting to enter the fiscal area in several sectors because the focus is different from their usual monetary policy, "commented Quincy Krosby of Prudential Financial regarding the release of Unemployment Claims data this time.
The US Dollar is Getting Weaker Due to Unemployment
The US dollar, which had been depressed in the previous session, has become even weaker due to the worse than expected unemployment claims data. At the time of writing, the US Dollar Index (DXY), which measures the strength of the dollar against six major currencies, was down 0.92 percent at 100.0. Meanwhile, USD / JPY dropped 1.22 percent to 109.77.
However, the decline in the US Dollar is predicted to be limited. According to analysts, the market will digest the Unemployment Claim data while looking at the situation. If it gets worse, then maybe the US Dollar will be supported again in the future.
"It might be difficult for the market to digest the weekly Unemployment Claim figures," said Tohru Sasaki, an analyst with JP Morgan Tokyo. "Bad numbers have been expected and are expected to continue or even worsen. In the end, this will instead support the US Dollar because investors will choose to repatriate their money."
The US Dollar Index (DXY) slipped again by more than 0.5 percent to around the 100.40s from the Asian session to the beginning of European trading today (26 / March). Market participants are still waiting for the endorsement of a fiscal stimulus of USD2 Billion scheduled to enter the legislative vote again tonight. However, investors and traders are also anticipating the release of soaring unemployment claims data. In line with this development, the risk-on sentiment that had surfaced yesterday is now starting to slacken again.
Economic Setback Due to COVID-19 Pandemic
As is known, the US parliament yesterday reportedly approved a bipartisan budget of USD2 Trillion to cover the economic setbacks caused by the Coronavirus epidemic (COVID-19). However, the budget is still in the process of ratification in parliament and cannot be disbursed yet.
Meanwhile, several US states have shown difficulties in meeting the needs of health services and PPE supplies which are commensurate with the rapid growth of cases of COVID-19 infection.
News of termination of employment has also been increasingly discussed, especially in non-essential service businesses such as restaurants, bars, and hotels. In a preliminary analysis last week, economists warned that unemployment claims across the United States could jump significantly to more than 1.5 million in data releases this week.
In this situation, market participants are ambivalent towards the US Dollar. On the one hand, the US Dollar is a world foreign exchange reserve currency whose status is almost always safer than high-risk character assets. On the other hand, the United States is feared to be on the brink of recession. Especially if New York becomes a new epicenter for the COVID-19 epidemic, as mentioned in a recent WHO warning.
