Safe-haven dollar hits one-month low on vaccine hopes
Risk sentiment revived in currency markets on Wednesday as progress toward a COVID-19 vaccine helped equities rebound and commodity currencies strengthen, pushing the dollar to a one-month low.
The dollar index =USD fell below 96 for the first time since June, dropping to a one-month low of 95.770. It pared some of those losses in afternoon trade, last down 0.09% to 96.070.
U.S. company Moderna (MRNA.O) has produced an experimental COVID-19 vaccine that provoked immune responses in all 45 volunteers, sparking markets’ risk-on mood.
But there was still some cause for caution, with worsening U.S.-China tensions and fears about the economic impact of a second wave of coronavirus in the United States.
Florida, which has become an epicenter of the new outbreak, reported 133 new COVID-19 fatalities on Tuesday, and raised its death toll to more than 4,500.
Among the riskier commodity-linked currencies, the Canadian dollar CAD= was 0.73% stronger, the Australian dollar AUD= was up 0.43% and the New Zealand dollar NZD= was up 0.46%.
“The USD’s weakness was again attributed to the risk-on backdrop, which saw stocks and yields head higher, prompting the unwinding of safe-haven long USD positions. The surge in risk-taking came following news that Moderna’s experimental COVID vaccine looks promising,” wrote analysts at Action Economics.
The euro EUR= rose to a four-month high of $1.145 versus the dollar, close to the euro-dollar’s peak of $1.150 in early March. It was last up 0.11% at $1.141.
The single currency was boosted by a combination of dollar weakness and hopes that European Union leaders will reach an agreement about a proposed coronavirus recovery fund at the EU summit on Friday and Saturday.
“The pair has been floated by a combo of broader dollar softness, which has come amid a risk-on backdrop, and by the recent broad underpinning the euro has seen amid expectations for EU leaders to green-light the proposed 750 billion euro recovery fund this week,” wrote analysts at Action Economics.
German Chancellor Angela Merkel said in a news conference with Spanish Prime Minister Pedro Sanchez on Tuesday that Germany would push for a compromise. France believes it is possible to reach agreement on the recovery plan and budget, the office of the French presidency said on Wednesday.