Risk appetite in currency markets eased, as rising COVID-19 hospitalisations in Europe and the United States tempered euphoria about a possible vaccine.
Global markets surged on Monday after Pfizer Inc PFE.N said its experimental vaccine is more than 90% effective. But traders became more risk-averse after the heads of the Fed and the ECB stressed that the economic outlook remains uncertain.
With the euro zone likely heading back into recession this quarter, the ECB has already said it would provide more stimulus in December.
European countries’ lockdown measures to limit the spread of the virus challenge the narrative of a global economic recovery. Surging coronavirus cases compounded fears of the damage to the bloc’s economy in the coming winter months.
In Europe, the number of hospitalisations are now higher than at the peak of the first wave. Officials said measures to control infections must continue.
Germany’s health minister said on Friday that it is too early to say how long the latest lockdown will last. while the French prime minister said France’s measures would not be eased for at least two weeks.
On the other side of the Atlantic Ocean, president-elect Joe Biden was set to cement his election win. Biden will probably capture the battleground state of Arizona. The news further weakens President Donald Trump’s efforts to overturn the results of the Nov. 3 election.
Further, several U.S. states have introduced stricter social distancing rules following reports of record hospitalisations.
U.S. Federal Reserve Chair said on Thursday that near-term economic risks remain. Jerome Powell underscored the likely need for additional government stimulus.
START TRADINGForex – Rising COVID-19 hospitalisations temper vaccine enthusiasm
One sticking point for markets has been the inability of U.S. lawmakers to agree an adequate spending package. The need for this stimulus was highlighted by Thursday data showing a slower pace of jobs recovery and weak inflation.
The dollar dipped on Thursday as investors appeared to waver between optimism and caution.
The dollar index in early London trading, down around 0.1% on the day at 0817 GMT at 92.884.
The safe-haven yen dropped around 2% versus the dollar on Monday. The Japanese currency continued to claw back some of these losses, up around 0.1% on the day at 105.07. Despite the pullback, the yen was still on track for its worst week since March.
The Australian dollar – a liquid proxy for risk – was broadly flat on the day and slightly down on the week. Caution about the economic fallout from the virus won out over optimism about a vaccine.
The New Zealand dollar was down 0.2% versus the dollar at 0.6823. However, the Kiwi is up on the week after jumping to its highest since March 2019 after the RBNZ meeting.
The euro was slightly up on the day at $1.18105 at 0824 GMT, ahead of euro zone Q3 GDP data due at 1000 GMT.
Versus the Swiss franc, the euro extended its gains from earlier in the week. The safe-haven currency was up more than 1% on the week as a whole, at 1.08105.
Oil prices remained on track for a second week of gains. But the COVID-19 surge and higher U.S. crude stockpiles pushedBrent futures 1% lower to $43 a barrel.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money