Depressed dollar sinks to three-month low
Riskier assets benefit from vaccine hopes and likely US fiscal boost
The dollar traded near its lowest levels in nearly three months on Wednesday as progress in developing a novel coronavirus vaccine and expectations for a fiscal boost from a new US government triggered a shift of funds from the greenback to riskier assets.
The US currency traded near a two-month low against the Australian dollar and a two-year low against the New Zealand dollar, both considered barometers of risk sentiment due to their close ties with the global commodities trade.
The greenback recovered some ground by midday in London, however, as some of the early boost to risk appetite faded with stocks in Europe turning negative. The euro fell 0.1 percent to the dollar to $1.18820.
Still, the dollar is expected to continue to fall as progress on a vaccine and the expected choice of former Federal Reserve Chair Janet Yellen as the next US Treasury secretary relieved
two big uncertainties for investors. “From here, the Fed will prove a mere auxiliary to maximize fiscal impact by ensuring cheap funding,” said John Hardy, head of FX strategy at Saxo Bank.
He said the Fed would do this by printing money and keeping rates low across the yield curve.
“On that note, it makes sense to have a former Fed chair helping to maximize that fiscal-monetary coordination under a Biden administration. So the long-term implications of the Yellen nomination are distinctly dollar negative,” Hardy added.
The British pound bought $1.3326, close to its highest in more than two months.
Against the yen, the dollar gained marginally to 104.48.
Research suggesting that a COVID-19 vaccine could be available before the end of the year has sent US stocks surging to record highs and reduced the appeal of holding the dollar as a safe-harbor currency.
Risk appetite has also improved after US President Donald Trump’s administration began cooperating with President-elect Joe Biden’s transition team, and after reports that Yellen, an advocate of more fiscal spending, will take the top job at the Treasury.
The dollar index, pitting the dollar against a basket of six major currencies, was at 92.235 after falling 0.4 percent on Tuesday.
The onshore yuan rose to 6.5739 per dollar on hopes for better Sino-US ties under Biden. Other Asian currencies also edged higher.
The antipodean currencies, which benefited earlier as investors unwound bets for additional monetary stimulus in both countries, eased by midday in London.
Improving risk appetite means the Australian dollar’s next target is its high of $0.7413 on Sept. 1.
The New Zealand dollar, which has rallied 5.5 percent so far this month, is trading just shy of its strongest since June 2018.
Bitcoin, the most popular cryptocurrency, climbed to $19,241 just short of its record of $19,666 from December 2017.