Market Overview

Dollar rises as virus mutation rattles confidence

The dollar was firm on Tuesday but was well below peaks hit on Monday’s wild ride higher, as a new coronavirus strain in Britain sent jitters through holiday-thinned currency markets. Sterling and the New Zealand dollar fell half a percent in cautious trade in Asia, the Australian dollar fell 0.4% and the euro was 0.2% softer at $1.2228. At $1.3308, the pound was still nearly two cents clear of a 10-day low made on Monday, when it briefly lost as much as 2.5% after the virus mutation prompted countries to cut travel links with Britain and as Brexit trade talks stalled.

Low liquidity, with many traders logged out for the year, exaggerated the speed and size of the dollar’s gains against other currencies, too, as stop-loss mechanisms dumped investors out of bets against the greenback. The moves unwound over the New York session, as a Bloomberg report hinted at progress in Brexit trade negotiations and as Congress settled on a U.S. stimulus package, encouraging investors to buy back in to the dollar’s downtrend.

The euro is a cent above its Monday low of $1.2130 and firmed 0.3% on the pound to 91.23 pence. Experts said there was no evidence that vaccines would not protect against the new virus variant, but Britain’s chief scientific adviser said that in the meantime tighter restrictions on public life in Britain were likely. Britain also faces food shortages because countries across the globe have locked their borders to the country to try and contain the highly-infectious strain.

A downtrend that has the dollar index on course for a third consecutive quarterly loss and has carried it some 12.5% lower from a March peak has left it both irresistible to momentum funds and overdue for a pause. The index, which measures the dollar against a basket of six major currencies was last up 0.2% at 90.259 though beneath its Monday top of 90.978. That is 0.6% above a 2-1/2 year trough of 89.723 it hit last week.

The yuan, which has gained nearly 10% on the dollar since a March low has been steady for about a week now and was a fraction softer at 6.5433 per dollar on Tuesday.

Dollar rises as virus mutation rattles confidence, Reuters, Dec 22

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