FOREX MARKET

Dollar sinks for 3rd straight session as risk sentiment rises – CNBC


A hand holds a series of fanned out U.S. dollar notes.
Thomas Trutschel | Photothek | Getty Images

The dollar edged higher against the euro on Wednesday as the risk of extended lockdowns in Europe to combat the spread of COVID-19 and worries about the pace the rollout of vaccines weighed on the common currency.

European countries are struggling to contain the contagion of the coronavirus amid worries that a new variant of the virus could lead to more stringent lockdowns and more economic pain.

Investors are also fretting about the slower pace of the rollout of vaccines relative to the United States and Britain may hobble economic recovery in the region.

Germany’s most populous state, North-Rhine Westphalia, said on Wednesday it would delay the opening of new vaccination centers to Feb. 8 due to a temporary slowdown of deliveries of vaccines from Pfizer PFE.N and its German partner Biotech .

“The euro slipped as the risk of longer lockdowns in Europe kept alive the threat of a double-dip recession,” Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington, said in a note.

The dollar was 0.2% higher against the euro, ahead of Thursday’s European Central Bank meeting, which, after the broad easing of monetary policy last month, is unlikely to produce any major change.

Investors’ appetite for riskier currencies was generally firm ahead of Joe Biden’s inauguration as U.S. president at noon (1700 GMT) in Washington.

“The new administration is expected to push an agenda of stronger stimulus of nearly $2 trillion in a bid to put the recovery on a better path,” Manimbo said.

U.S. Treasury Secretary nominee Janet Yellen urged lawmakers at her confirmation hearing to “act big” on stimulus spending and said she believes in market-determined exchange rates, without expressing a view on the dollar’s direction.

The risk-sensitive Australian dollar was 0.79% higher on the day, while the New Zealand dollar rose 0.69%.

While the dollar has perked up in recent weeks on the back of a rise in U.S. Treasury yields, investors still expect the currency to weaken.

Positioning data shows investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.

A combination of heightened risk appetite in global markets and UK-specific optimism lifted the pound on Wednesday, as it strengthened to its highest in nearly three years against the dollar.

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