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US dollar drifts as risk sentiment proves elusive
THE US dollar edged lower against its rivals on Wednesday as investors weighed hopes for a swift economic recovery against fears about a resurgence in the pandemic, particularly in the United States.
Demand for the currency proved remarkably stable as oil prices steadied while European bourses traded in negative territory.
The euro rose marginally against the greenback at US$1.1289, while a recent fall in selling positions against the greenback provided room for possible further drops.
Noting the absence of major economic indicators during the session to set a trend, Marshall Gittler, head of investment research at BDSwiss, argued the US dollar "is generally at the mercy of risk sentiment - which seems to be taking a turn for the worse".
The US dollar is typically seen as a safe haven for investors to park their cash each time a resurgence of the pandemic seems to threaten a global economic recovery. He noted that while it may seem counter-intuitive, rising virus cases in the US often encourage investors to buy in the currency.
Commerzbank analysts also said that the current standstill for the US dollar reflected the lack of visibility for global growth rather than a new-found serenity on world markets.
"There are strong fears that the continued spread of the virus might quickly stifle this recovery again, which in turn would strengthen the US dollar due to its - admittedly questionable - status as a safe haven," Commerzbank foreign exchange analysts told clients in a note.
Sterling shrugged earlier losses and rose 0.2 per cent at US$1.2561 as talks resumed between Britain and the European Union on terms for their future trade relations.
A Commission official said on Wednesday that future access for UK banks, clearing houses and trading platforms was currently being assessed to take into account how far the United Kingdom will diverge from the bloc's rules.
Overall, the pound held close to three-week high as traders awaited an announcement on Wednesday by British Finance Minister Rishi Sunak of his next moves to prevent a wave of job cuts from damaging an already weakened economy.
Earlier, the onshore yuan was stable at 7.0129, halting a two-day rally, after the Chinese central bank's daily midpoint for the currency was set at a weaker than expected level.
Other Asian currencies straddled narrow ranges as a resurgence of coronavirus cases threatened a return of lockdown restrictions, leaving investors fretting about the mounting economic costs of the pandemic. REUTERS