Currencies Fluctuated on Tuesday. How did the Dollar Fare?
The U.S. dollar climbed up on Tuesday as traders remained optimistic about progress towards a coronavirus vaccine. However, the moves were more moderate than in the previous session. Meanwhile, the Japanese yen is low.
On Monday, German partner BioNTech SE and U.S. drugmaker Pfizer Inc announced that a large-scale clinical trial showed their vaccine was 90% effective in preventing coronavirus. That news boosted global markets with a wave of risk appetite. But it subsided somewhat overnight before re-igniting on Tuesday.
The greenback soared after the announcement. It is a safe-haven currency and usually plunges on positive news. However, analysts noted that the move was caused by traders quitting long positions in other major risk-off currencies such as the Swiss franc and the Japanese yen.
The dollar increased slightly, staying near the previous session’s highs, while investors tempered their initial pro-risk reaction due to uncertainty about how or when a vaccine would be rolled out.
The risk-on moves will likely continue – stated Neil Jones, the head of FX sales for financial institutions at Mizuho. He also added that it’s not over, but it will also not write off the prospect of a vaccine. The optimism will remain for now.
The dollar traded at 92.792 against a basket of currencies on Tuesday, slightly higher on the day. The currency has already lost roughly 1.4% this month after Democrat Joe Biden’s victory in the U.S. election boosted market sentiment.
What about the Japanese Yen and other currencies?
The Japanese yen experienced its biggest one-day plunge since March after the vaccine announcement. Even though the currency rebounded after that, it was still relatively weak at 105.155 on Tuesday.
Commerzbank FX and EM’s analyst You-Na Park-Heger stated that after a euphoric market reaction such as that, the question is whether it was justified or possibly exaggerated. She added that even if the news of a vaccine could be a game-changer, traders must be cautious, as some disenchantment could follow the big euphoria.
The euro-dollar traded flat on the day at $1.1815. During a previous session, it surged forward to as high as $1.192. However, the pair went no further. Mizuho’s Jones noted that could be due to the European Central Bank has hinted its awareness of the downsides of rapid euro strength.
The Australian dollar was also broadly flat versus the dollar on Tuesday. Its rally in the immediate aftermath of the vaccine news was short-lived. Meanwhile, the New Zealand dollar gained 0.2%, in its seventh consecutive session of gains.
The Norwegian crown extended its gains against the euro on Tuesday, rising by 0.4% on the day at 10.644. China’s offshore yuan hit new 2.5-year highs versus the greenback on Monday. However, it lost some gains on Tuesday, trading at 6.6028.
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