US dollar loses safe-haven shine; euro hits 11-week high

London

THE euro reached an 11-week high on Tuesday as the US dollar lost ground, with investors maintaining their hopes for a global economic recovery.

The optimism persisted within markets despite growing concern over US-China tensions and mass protests across the United States over the death of a black man in police custody.

Traders remain hopeful that central banks will continue to buy government bonds and other financial assets to protect their economies from the coronavirus pandemic.

The European Central Bank, for instance, is expected to increase its 750 billion-euro (S$1.17 trillion) Pandemic Emergency Purchase Programme, or PEPP, on Thursday, probably by around 500 billion euros.

The Bank of Japan, ECB and the Federal Reserve have increased their balance sheets by 10 per cent, 20 per cent and 70 per cent respectively since the start of this year, said Kit Juckes, macro strategist at Societe Generale.

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The euro last fetched US$1.1178, up 0.4 per cent on the day, after rallying to US$1.1185, its highest since March 17.

The US dollar fell to a three-month low of 1.3503 against the Canadian dollar and was last trading down 0.4 per cent. It also fell against the Australian dollar, which rose to US$0.6852, its highest since Jan 24.

The safe-haven Japanese yen fell 0.1 per cent versus the US dollar to 109.71.

"The strengthening of the commodity-linked currencies and the weakening of the safe havens suggest that investors' appetite remained supported for another day," said Charalambos Pissouros, senior market analyst at broker JFD Group.

"It seems that investors continued placing bets on the prospect of a global economic recovery as governments around the globe continue to ease their lockdown measures," the senior market analyst said.

The US dollar index against a basket of six major currencies fell to its weakest since mid-March, at 97.44, before settling in neutral territory at 97.82.

The index has fallen about 5 per cent from a peak hit in March, when panic over the Covid-19 pandemic gripped the world's financial markets, prompting investors to scramble for the safety of US dollars.

George Saravelos, a currency strategist at Deutsche Bank, said he expects the US dollar to weaken about 10 per cent in narrow trade-weighted terms to fully take out the risk premium, adding that so far the currency has fallen 3 per cent. He sees euro/US dollar rising to US$1.15. REUTERS