Risk-sensitive currencies recover some losses; dollar steadies

London

THE dollar steadied on Monday and commodity currencies erased some losses as the "risk-off" sentiment which dominated overnight trading eased somewhat. Equity markets fell in early London trading, with many analysts citing fears of a second wave of Covid-19 infections.

China re-introduced restrictions in some areas after Beijing reported its biggest cluster of new infections since February.

In the United States, more than 25,000 new cases were reported on Saturday alone.

Against a basket of currencies, the dollar rose overnight, gaining 0.4 per cent between 0440 GMT and 0700 GMT. It then erased some gains, and was at 97.12 at 1015 GMT.

Societe Generale FX strategist Kenneth Broux said the market had reacted to news about rising Covid-19 infections. Market consensus is that the dollar's gains peaked in March, and traders are now pausing for profit-taking, he said.

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Commerzbank's head of FX and commodity research Ulrich Leuchtmann said there had long been news of new infections, and the fact that other safe-haven currencies did not strengthen suggested the dollar's rise was more a product of its recent weakening.

"In my view it is all much more trivial. Following a pronounced period of US dollar weakness it is now time for a correction and profit-taking," Mr Leuchtmann said.

The Australian dollar fell to a 13-day low versus the dollar in early London trading before erasing some losses to 0.6805 , down 0.7 per cent. The New Zealand dollar was down 0.4 per cent. The safe-haven Japanese yen held firm against the dollar and was little changed from Friday's close at 107.36.

Industrial output in China rose for a second consecutive month in May, but the rise was smaller than expected, suggesting that the world's second-biggest economy is struggling to get back on track after containing the virus outbreak.

"More evidence of economic recovery in China is a positive development for the global economy, although market participants understandably remain on edge over the risk of further disruption from second waves," MUFG currency analyst Lee Hardman wrote in a note to clients.

European countries eased some border controls on Monday following Covid-19 lockdowns, a move that could help salvage part of the summer season for Europe's battered travel and tourism industry.

The euro was broadly flat against the dollar at US$1.1251.

Financial markets may be in the process of repricing the world's most-traded exchange rate, with derivative contracts suggesting that the euro could surge by as much as 6 per cent against the dollar to US$1.20 by year-end. REUTERS