CURRENCIES

Risk FX retreat catapults US dollar to 3-month high

Published Tue, Jul 20, 2021 · 05:50 AM

London

CURRENCIES such as the Australian dollar, the Canadian dollar, Norway's krone and Britain's pound took a beating on Monday, catapulting the US dollar to its highest in three months as a worldwide surge in coronavirus cases hit sentiment in global markets.

The only major currency which did not cede ground to the greenback was the safe haven Japanese yen, which gained 0.3 per cent on the day to 109.74 yen to the dollar.

With England lifting all Covid-19 social restrictions on what some local media has dubbed "freedom day", the continued spread of the highly contagious Delta variant of the virus drew further doubt from investors about whether a total economic recovery to pre-pandemic levels is possible.

Earlier this week, British Health Minister Sajid Javid announced he tested positive for Covid-19 and was in self-isolation, also forcing Prime Minister Boris Johnson and Finance Minister Rishi Sunak into quarantine. Sterling hit a three-month low against the US dollar of US$1.3703.

The US dollar benefited from the risk aversion in global markets, with the index that measures its strength against peer currencies hitting its highest since April 5. The greenback also benefited from the divergence in transatlantic real yields.

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Germany's 10-year inflation-linked bond yield fell to its lowest in nearly two years on Monday on concerns that the resurgent Delta variant would undermine economic recovery and weigh further on eurozone inflation. "We're starting to see the FX markets catch-up to bond markets, and more recently equity markets, in terms of fading reflation bets," said Viraj Patel, FX and global macro strategist at Vanda Research.

"We think it's wise to start taking chips off the table as risks of a policy mistake on both sides of the Atlantic are increasing (Fed tightening amid a growth moderation or Europe reopening amid Delta)."

The Aussie dollar, which hit its lowest since December 2020 during Asian hours, extended those losses during morning trade in London to hit a low of US$0.7363. It was down 0.6 per cent on the day.

The Canadian dollar, which dropped through its 200-day moving average in Asian trade, fell past C$1.27 against its US counterpart to C$1.2780, its lowest since Feb 8. It was down 1.2 per cent on the day.

"Despite rising vaccination rates, a return to pre-Covid normality seems questionable," said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank in a morning research note. REUTERS

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