US dollar slips after vaccine news boosts risk appetite

London

THE US dollar edged down slightly on Tuesday and the Japanese yen recovered some of the previous session's losses after news of progress towards a Covid-19 vaccine boosted risk appetite in global markets.

US drugmaker Pfizer and German partner BioNTech said on Monday a large-scale clinical trial showed their vaccine was more than 90 per cent effective in preventing Covid-19.

The US dollar - which is considered to be a safe haven and so typically falls on positive news - rose after the announcement, as investors quit their long positions in safe currencies such as the Japanese yen and Swiss franc. The safe-haven Japanese yen tumbled to a 20-day low versus the greenback.

But these moves eased on Tuesday, with the yen and franc clawing back some of their losses, as market participants tempered their initial pro-risk reaction in light of uncertainty about how or when a vaccine could be rolled out.

"Following a euphoric market reaction such as that, the question that now arises is whether it was justified or possibly exaggerated," wrote Commerzbank FX and EM analyst You-Na Park-Heger in a note to clients. "Even if the news of a vaccine could be a game-changer, we urge caution, as the massive euphoria could be followed by some disenchantment."

But Lee Hardman, currency analyst at MUFG, said that despite the uncertainties "it is still an important step forward to exit the Covid crisis and provides a reminder not to bet against human ingenuity".

"Further positive progress on vaccines will allow currencies which have been hit hard by the Covid crisis to continue to rebound," he said.

At 8.13am GMT, the US dollar index was at 92.730, broadly flat on the day and up around 0.3 per cent since Pfizer's announcement on Monday .

The greenback has lost around 1.4 per cent this month as Democrat Joe Biden's victory in the US presidential election provided a major boost to market sentiment.

Euro-dollar was up around 0.1 per cent at US$1.18315, having fallen as the US dollar strengthened in the previous session.

The Australian dollar - seen as a liquid proxy for risk appetite - was up just 0.1 per cent versus the US dollar as the boost from the vaccine news proved short-lived. China's offshore yuan, which has been gradually strengthening since May, hit new 2½-year highs versus the US dollar on Monday but eased some gains on Tuesday, up 0.3 per cent on the day at 6.5970 at 8.27am GMT. REUTERS