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U.S. dollar slips as risk sentiment picks up, but keeps positive outlook

07/21/2021 | 05:43pm EDT
FILE PHOTO: South Korean won, Chinese yuan and Japanese yen notes are seen on U.S. 100 dollar notes in this picture illustration taken in Seoul

NEW YORK/LONDON (Reuters) - The safe-haven dollar on Wednesday pulled back from more than three-month highs as risk appetite made a comeback with stocks higher, although investors remained cautious amid inflation fears and concerns about the highly-contagious coronavirus variant.

Another safe haven, the Japanese yen, was also down against the dollar, as risk aversion eased.

The Delta variant of the coronavirus, which has caused a surge in infections worldwide, rose to the top of investor concerns along with inflation this week, prompting global stocks to drop sharply on Monday. European equity markets though picked up on Wednesday and Wall Street shares rose as well.

In afternoon New York trading, the dollar index, a measure of its value against six major currencies fell 0.2% to 92.755. On Tuesday, the index hit a more than three-month high.

Market participants though remained bullish on the dollar's outlook, at least over the next few months.

"Between yield differentials and COVID-driven safe-haven demand, the U.S. dollar has been the proverbial belle of the forex ball this week," said Matt Weller, global head of market research at FOREX.com and City Index.

"These themes should continue to support the dollar in the coming weeks, but a recovery in the market's risk appetite, especially if driven by additional monetary or fiscal stimulus from the U.S., would undercut the nascent trend of strength in the greenback," he added.

The Federal Reserve's stimulus measures or quantitative easing have restrained the dollar as it increased the currency's supply in the financial system.

"Currently, we have high inflation in the U.S. which is keeping the door open for the Fed to taper stimulus," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, a scenario that's positive for the dollar.

Against the yen, the dollar rose 0.4% to 110.26.

The Australian dollar, seen as a liquid proxy for risk appetite, fell to its lowest since November before recovering somewhat. It was last up 0.4% at US$0.7357, while the New Zealand dollar rose 0.9% to US$0.6976.

Australia's two largest states reported sharp increases in new COVID-19 cases on Wednesday, a blow to hopes that lockdown restrictions would be lifted as more than half the country's population was subject to stay-at-home orders.

The British pound, which on Tuesday hit its lowest since February, was up 0.6% at $1.3715.

Analysts pointed to a stand-off between Britain and the European Union. Prime Minister Boris Johnson said his government would outline its approach on the Northern Ireland Protocol to Britain's parliament on Wednesday. COVID-19 cases in Britain are also surging.

The euro rose 0.2% versus the dollar to $1.1797.

Currency markets are looking ahead to the European Central Bank's (ECB) meeting on Thursday. A dovish tone is expected after ECB President Christine Lagarde foreshadowed a guidance tweak in an interview last week.

In cryptocurrencies, bitcoin rose back above $30,000, having dipped below this key level for the first time in a month on Tuesday. It last traded up 7.4% at $31,991, while ether surged more than 10% to $1,971.79.92.

(Reporting by Gertrude Chavez-Dreyfuss in New York and Elizabeth Howcroft in London; Editing by Joe Bavier, Kirsten Donovan and Andrea Ricci)

By Gertrude Chavez-Dreyfuss and Elizabeth Howcroft

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) 0.11% 0.5318 Delayed Quote.-5.77%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.28% 0.74153 Delayed Quote.-4.33%
BRITISH POUND / JAPANESE YEN (GBP/JPY) 0.00% 151.616 Delayed Quote.7.56%
BRITISH POUND / US DOLLAR (GBP/USD) 0.19% 1.39404 Delayed Quote.1.58%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.30% 1.075188 Delayed Quote.6.32%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.24% 86.721 Delayed Quote.7.75%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.03% 0.79738 Delayed Quote.1.86%
EURO / JAPANESE YEN (EUR/JPY) -0.01% 129.332 Delayed Quote.2.99%
EURO / NEW ZEALAND DOLLAR (EUR/NZD) -0.25% 1.68103 Delayed Quote.0.00%
EURO / US DOLLAR (EUR/USD) 0.21% 1.18913 Delayed Quote.-2.79%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) -0.02% 1.468343 Delayed Quote.4.03%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.16% 0.013489 Delayed Quote.-1.77%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.07% 0.8287 Delayed Quote.-3.36%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.24% 76.932 Delayed Quote.2.99%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.46% 0.70736 Delayed Quote.-2.69%
S&P 500 0.82% 4423.15 Delayed Quote.16.80%
THE WESTERN UNION COMPANY -0.22% 22.74 Delayed Quote.3.65%
US DOLLAR / JAPANESE YEN (USD/JPY) -0.22% 108.75 Delayed Quote.5.87%
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