CURRENCIES

US dollar gains as inflation, Covid fears resurface

Published Thu, Jul 22, 2021 · 05:50 AM

London

CURRENCY markets still showed signs of caution on Wednesday, with the safe haven US dollar touching its highest since early April, and riskier currencies losing out due to a combination of fears over inflation and surging Covid-19 infections.

The Delta variant of the coronavirus replaced inflation as investors' primary source of concern this week, prompting global stocks to drop sharply on Monday. European equity markets picked up on Wednesday and Wall Street futures pointed to a stronger open.

By 7.20pm Wednesday, Singapore time, the dollar index was up 0.1 per cent at 93.055, having touched 93.194 in early trading, the highest since April 1.

Joel Kruger, currency strategist at LMAX Group, said the risk-averse mood and inflation fears were joining forces to push the US dollar higher.

"It's becoming increasingly difficult for the Fed to be able to reconcile its stance that inflation is transitory. At some point the definition of transitory is called into question," he said.

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The Australian dollar, seen as a liquid proxy for risk appetite, fell to its lowest since November in early trading before recovering somewhat.

At 7.24pm Wednesday, Singapore time, it was down 0.2 per cent on the day at US$0.73135, while the New Zealand dollar was up 0.1 per cent at US$0.6924.

The British pound, which on Tuesday hit its lowest since February, was down 0.1 per cent at US$1.3616.

Analysts pointed to a stand-off between Britain and the European Union. Prime Minister Boris Johnson said that 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 was down 0.4 per cent versus the commodity-dependent Norwegian krone, with the pair changing hands at 10.5722 compared to 10.7038 in the previous session, a seven-month low for the crown.

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.

The euro was down 0.1 per cent against the US dollar, at US$1.1772, having earlier hit a 3.5-month low.

In cryptocurrencies, bitcoin rose back above US$30,000, having dipped below this key level for the first time in a month on Tuesday. REUTERS

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