Dollar firm as pandemic resurgence dampens risk appetite
NEW YORK (Reuters) – The US dollar rose on Wednesday from a seven-week low hit overnight, as broad weakness in stock markets triggered by a resurgence of COVID-19 cases in India and Japan encouraged a retreat to the safe-haven appeal of the greenback.
The safety bid also supported the Swiss franc and the Japanese yen as the outlook for the global economy soured.
The rise in the dollar comes after the greenback weakened through much of April as US interest rates declined and traders bet that vaccinations would open up a stronger global economic recovery and drive demand for riskier and higher-yielding currencies.
The dollar index, which tracks the US currency against six major peers, was up 0.1% at 91.289 in the morning in New York after slumping overnight as low as 90.856.
The greenback’s bounce came with softer US Treasury yields as investors reconsidered how long it might take before inflation forces the US Federal Reserve to tighten monetary policy and as they saw prices for
oil and stocks hit on Tuesday by the prospect of a slower global recovery because of more COVID-19 cases.
The Federal Reserve’s Open Market Committee meets next week and the European Central Bank decides policy on Thursday. Though neither is expected to signal a change in policy now, traders may hold back from big bets for a few days, said Joseph Manimbo, senior market analyst at Western Union Business Solutions.
“I think the market is just going to play it carefully in case the Fed changes its tune,” Manimbo said.
At the moment, he sees the market acting as though it is at “somewhat of a crossroads for the dollar given that it has struggled this month.”
The benchmark 10-year Treasury yield hovered just above 1.57% on Wednesday morning, not far from the 1.60% level at the start of the week, as the note consolidated gains after a reversal that had driven yields to a 14-month high at 1.7760% last month.
The biggest casualty of the dollar’s rise in Wednesday trading was the euro, with the single currency weakening 0.24% at $1.2007 after touching a seven-week high of $1.2079 overnight.
The Japanese yen, often seen as a safer refuge than the dollar, gained against the greenback to 107.86 but then drifted back to 108.14 on Wednesday morning.