Dollar Down, But U.K. COVID-19 Vaccine Optimism Boosts Pound
The dollar was slightly down on Tuesday morning in Asia, with the pound rising to an almost three-year high over increasing vaccine optimism. Rising oil prices and the general optimism for a global economic recovery from COVID-19 boosted currencies exposed to commodities and trade.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.06% to 90.267 by 8:31 PM ET (1:31 AM GMT).
The USD/JPY pair edged up 0.12% to 105.48.
The AUD/USD pair was up 0.22% to 0.7795 and the NZD/USD pair was up 0.26% to 0.7245.
The USD/CNY pair was steady at 6.4582.
The GBP/USD pair gained 0.27% to 1.3941. The pound has jumped as much as 2.5% against the dollar in less than two weeks, over hopes that the U.K.’s aggressive COVID-19 vaccine rollout will enable to the country to see a swifter economic recovery than its European peers. The pound remained above the $1.39 mark that it surpassed on Monday and was holding steady at its highest level against the euro since May 2020.
Trade was thin due to holidays in both China and the U.S., however the optimism weighed on the yen. The safe-have asset dropped to a one-week low against the dollar during the previous session, while tumbling to more than two-year lows against the euro and the AUD.
“The yen has been the worst performing currency of 2021, with its negative correlation to U.S. Treasury yields proving to be the biggest dampening factor … when adding weak safe-haven demand as the global recovery gathers pace, some additional trimming of yen net long positions may be on the cards,” ING currency strategist Francesco Pesole said in a note.
The Chinese yuan strengthened past 6.4 for the first time against the dollar since mid-2018 in offshore trade, taking advantage of greenback weakness in Asia.
The dollar index was hovering near a two-week low reached last Wednesday.
“The dollar tends to underperform when you see this broad positive sentiment in markets,” National Australia Bank (OTC:NABZY) senior currency strategist Rodrigo Catril told Reuters.
There are also inflationary pressures particularly coming from energy prices,” which is pushing up nominal yields. These are adding another weight on the yen as that can attract flows from Japan but keeping real returns on Treasuries steady, he added.
On the cryptocurrency side, Bitcoin was just below the $50,000 mark as profit taking hit the pause button on a rally that has seen a more than 60% gain in 2021 to date.
Investors also await data due later in the day, including the U.S.’ NY Empire State Manufacturing Index for February. Across the Atlantic, the data includes the German Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment index, as well as the EU’s GDP and ZEW Economic Sentiment Index.