Euro sinks amid broader risk rally against dollar

London

THE euro struggled to join a broader risk rally against the US dollar on Wednesday as analysts said the risk of extended lockdowns in Europe to combat the spread of Covid-19 and the continent's lag in a vaccine rollout were weighing on the currency.

Down 0.1 per cent against the dollar at US$1.2117 by 1130 GMT, Europe's shared currency had only the safe-haven Swiss franc and Sweden's kronor for company in resisting a broad rally against the greenback by the G-10 group of currencies.

"We're getting more headlines that the current lockdowns will be extended further, which could mean that the euro zone would be flirting with a double-dip recession before long," said Valentin Marinov, head of G-10 FX research at Credit Agricole, noting Europe's lag in rolling out a Covid-19 vaccine compared to the United States and Britain.

He also noted price action in the pound, which hit US$1.3720 - a 21/2 year high - and 88.38 pence - its highest since May 2020 against the euro - as a contributing factor to euro weakness.

Elsewhere, the risk-sensitive Australian dollar gained 0.4 per cent to US$0.7727.

The New Zealand dollar, also a commodity currency like the Aussie, gained 0.25 per cent to US$0.7133.

US Treasury Secretary nominee Janet Yellen urged lawmakers at her confirmation hearing to "act big" on stimulus spending and said she believes in market-determined exchange rates, without expressing a view on the dollar's direction.

The index that measures the dollar's strength against a basket of peers was up almost 0.1 per cent at 90.510. The euro forms nearly 60 per cent of the dollar index by weight.

It also fell 0.1 per cent against the Japanese yen to 103.81 yen per dollar.

While the dollar has perked up in recent weeks on the back of a rise in US Treasury yields, investors still expect the currency to weaken.

"We remain bearish US dollar, and expect the downtrend to resume as US real yields top out," said Ebrahim Rahbari, FX strategist at CitiFX. "Continued Fed dovishness remains important for our view, in addition to global recovery, so we'll watch upcoming Fed-speak closely."

Positioning data shows investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.

UBS Global Wealth Management's chief investment officer Mark Haefele reiterated a bearish view on the dollar, saying that pro-cyclical currencies such as the euro, commodity-producer currencies, and the pound would benefit "from a broadening economic recovery supported by vaccine rollouts". REUTERS