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Sunday, January 29, 2023

Currency markets turn risk-averse

Currency markets

The dollar index’s rebound from three-year lows began last week

Currency markets turned risk-averse on Friday, with the dollar on track for its biggest weekly gain since November 2020 and analysts predicting further short-term strength as rising coronavirus infections limit risk appetite.

The dollar index’s rebound from three-year lows began last week. It picked up as European markets opened on Friday, having slowed overnight after U.S. Federal Reserve Chair Jerome Powell said “now is not the time” to be talking about changing the Fed’s asset purchases.

President-elect Biden laid out his $1.9 trillion stimulus package proposal on Thursday, but analysts said that the market impact was limited by uncertainty over how easily Democrats will be able to get their proposals through the Senate.

The reality is that while the Democrats now have increased power having won the run-off elections in Georgia last week, that power still has its limits, MUFG currency strategist Derek Halpenny wrote in a note to clients.

While short-term, the U.S. dollar could extend further, the big-picture backdrop for the dollar remains negative, he added.

The dollar index was at 90.407 versus a basket of currencies, up 0.2% on the day. It was set for a weekly gain of around 0.4%, making this its strongest week since November.

Against a stronger dollar, the euro was down 0.2% at $1.21325.

Rising coronavirus infections also curbed risk appetite, as daily cases in China hit their highest in more than 10 months.

France will tighten its COVID-19 border controls and bring its curfew forward by two hours, while German Chancellor Angela Merkel said she wanted “very fast action” to counter the spread of virus variants after Germany had a record number of deaths.


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