US dollar, yen rise as global outlook sours

London

THE US dollar rose on Wednesday from a seven-week low overnight, as broad weakness in stock markets triggered by a resurgence of Covid-19 cases in countries from India to Japan fuelled renewed appetite for the safe-haven appeal of the greenback.

The safety bid also supported the Swiss franc and the Japanese yen as the outlook for the global economy soured.

The greenback has weakened more than 2 per cent in April after a strong March rally, as investors bet that a global economic recovery premised on a speedy rollout of vaccines would fuel demand for nondollar currencies like the euro and the Aussie.

The dollar index, which tracks the US currency against six major peers, was up 0.11 per cent at 91.321 in London trading after slumping as low as 90.856 on Tuesday for the first time since March 3.

The greenback's bounce was also accompanied by softer US Treasury yields as investors weighed the surge in Covid-19 cases against a broad-based selloff in the US dollar in recent weeks despite strong US employment and retail sales data.

Thu Lan Nguyen, a strategist at Commerzbank said more positive US data could easily kick-start another US dollar rally, particularly if the uneven pace of vaccinations fuels greater demand for US Treasuries as a hedge against a crisis.

The biggest casualty of the US dollar's rise in London trading was the euro with the single currency weakening 0.25 per cent at US$1.2000, after touching a seven-week high of US$1.2079 overnight.

While the euro has benefited from the US dollar's weakness in recent weeks, Georgette Boele, an economist at ABN Amro believes the euro is likely to weaken further in coming days due to US economic outperformance and repricing of European Central Bank (ECB) rate expectations.

She expects the euro to weaken to US$1.15 by the end of 2021.

Declines in US yields and the US dollar in April have come as evidence mounted that the Fed would be slower in tightening monetary policy than it had appeared to the market.

Broadly, pandemic developments triggered investor caution.

On Wednesday, India reported its highest daily death toll from Covid-19, while Canada and the United States extended a land-border closure for non-essential travellers.

The Australian dollar, a barometer for risk appetite, nursed losses at US$0.7717 after weakening 0.4 per cent overnight. REUTERS