FOREX-Safety-bid drives up dollar as U.S. coronavirus surge dim quick recovery hopes

* Rising U.S. COVID-19 cases rekindle recession worries
* Dollar supported by safety bids
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, June 25 (Reuters) - The dollar held the upper hand on
Thursday as an increase in coronavirus cases in the United
States and fresh trade tensions undermined hopes for a quick
global recovery and prompted investors to trim bets on riskier
currencies.
The dollar's index against a basket of currencies advanced
0.1% to 97.27 .DXY .
The euro retreated to $1.1246 EUR= while the British pound
stepped back to $1.2411 GBP=D4 .
New daily U.S. virus cases surged to nearly 36,000 in the
latest tally, near a record of 36,426 hit in late April. The
percentage of positive results in tests is also climbing.
The governors of New York, New Jersey and Connecticut
ordered travellers from nine other U.S. states to quarantine for
14 days on arrival as COVID-19 showed signs of surging in the
southern and western parts of the country.
"The market is getting worried that this is not just a
temporary spike. Things could be actually getting worse, and
with the U.S. being the world's largest economy, any further
economic shutdowns would have serious repercussions," said Bart
Wakabayashi, Tokyo Branch manager of State Street Bank and
Trust.
In California, which has seen sharp rises in new cases in
the past few days, Disney Parks said it will delay re-opening of
theme parks and resort hotels. While some investors expect the economic impact from second
wave infections could be smaller than the first one, others
worry that policymakers might fail to respond forcefully and
risk further economic damage.
Also souring the mood was news that Washington is
considering changing tariff rates for various European products
as part of the trading partners' aircraft dispute. "The risk-averse mood is supporting the dollar. After the
markets have priced in all the positive news about economic
recovery, now we are seeing the news about the second wave,"
said Shinichiro Kadota, senior currency strategist at Barclays.
Commodity currencies, which had been supported by the rally
in oil and commodity prices, also took a hit.
The Australian dollar dipped slightly to $0.6859 AUD=D4
after losing 0.90% the previous day while the Canadian dollar
CAD=D4 drooped to C$1.3642 to the dollar, not helped by
Fitch's downgrade of Canada's sovereign rating.
The rating firm cut Canada's rating to "AA+" from "AAA,"
citing deterioration of the country's public finances in 2020
because of the COVID-19 pandemic. Against the yen, the dollar also jumped back to 107.18 yen
JPY= from a 1-1/2-month low of 106.075 touched on Tuesday.
The International Monetary Fund slashed its 2020 global
output forecasts further as it sees deeper and wider damage from
the pandemic than first thought. It now expects global output to shrink by 4.9%, compared
with a 3.0% contraction predicted in April, with U.S. output
forecast to shrink 8.0%, a downgrade of more than 2 percentage
points from the April forecast.
While massive stimulus by many governments have cushioned
the blow from the pandemic, helping many companies survive
lockdowns, investors fear a deeper recession would mean
corporate income will not recover as quickly as they have
initially hoped.
Bob Prince, Co-Chief Investment Officer of Bridgewater
Associates, said U.S. stimulus efforts may be able to support
corporate cash flows for the summer but that economic risk from
the pandemic is likely to extend far beyond that. Elsewhere, central banks in Turkey and Mexico are expected
to cut interest rates later in the day to shore up their
coronavirus-hit economies.
Ahead of the announcement, the Turkish lira was steady at
6.8509 to the dollar TRY= while the Mexican peso was a tad
softer at 22.808 per dollar MXN= .