Dollar falls as risk appetite increases

Reuters TOKYO | Updated on February 24, 2021

Federal Reserve chair says low rate policy to continue

The dollar slipped to a three-year low against the British pound and fell against commodities currencies on Wednesday as investors increased bets that a global economic recovery will boost riskier assets.

The New Zealand dollar briefly fell but then quickly stabilised after the country's central bank kept monetary policy on hold and said inflation and employment will remain below its targets in the medium term.

US Federal Reserve Chair Jerome Powell reiterated on Tuesday that interest rates will remain low and the Fed will keep buying bonds to support the US economy, which many traders say is a long-term negative factor for the dollar. At the same time, more money is flowing toward currencies that are expected to benefit from a pick-up in global trade and to countries that are bouncing back quickly from the coronavirus pandemic, which is also weighing on the dollar.

"Signs of economic recovery are lifting commodities prices,which in turn supports currencies of commodities exporters," said Junichi Ishikawa, foreign exchange strategist at IG Securities.

"Risk appetite has improved a lot, and this leaves the dollar at a big disadvantage."

The British pound rose to $1.4170, the highest since April 2018. The outlook for sterling has brightened as investors cheer Britain's rapid coronavirus vaccination programme and its plans to ease lockdown restrictions on economic activity. The New Zealand dollar edged up to $0.7367, close to a three-year high. The Reserve Bank of New Zealand expressed some caution about the outlook, which may have disappointed some traders who expected central bankers to acknowledge a recent improvement in economic data.

The Australian dollar, which tends to benefit from rising metal and energy prices, jumped to a three-year high of $0.7945. Against the euro, the dollar traded at $1.2158, close to a six-week low. The dollar managed to rise to 105.40 Japanese yen and hit an almost three-month high against the Swiss franc, but overall sentiment was still negative on thegreenback. Powell pushed back against suggestions that loose monetary policy will lead to runaway inflation and financial bubbles,which have emerged as two important themes this year, because there is growing scepticism about the rapid pace of gains in global stocks.

For economies that have limited disruptions caused by the coronavirus outbreak, their central bankers now face questions of when to start tightening policy, which makes the dollar look less attractive, some analysts say.

The dollar index against a basket of six major currencies fell to 90.025. In the cryptocurrency market, bitcoin halted its plunge from a record high above $50,000 and stabilised at $49,052. Square Inc has invested $170 million in the digital asset, but some analysts still argue that bitcoin's recent surge was excessive. Rival digital currency ether recovered from a sharp sell-off to trade up slightly at $1,591. ‘

Published on February 24, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like