Forex

Safe-haven dollar in demand as worries over European lockdowns, US taxes sap risk appetite

Reuters | Updated on March 24, 2021

Greenback nears four-month high after Germany extends lockdown; Yen also strengthens as Yellen defends need for higher taxes

Tokyo, March 24

The safe-haven US dollar approached a four-month high on Wednesday as concerns over a third Covid-19 wave in Europe, potential US tax hikes and escalating tensions between the West and China sapped risk appetite. The yen also strengthened and US Treasuries were bid while Wall Street stocks and crude oil tumbled as investors weighed the outlook for global growth.

The dollar index rose to a two-week high at 92.412 early in the Asian session, approaching a four-month top of 92.506 hit earlier this month. The gauge “looks determined to test the top end of a new, higher 91-93 range we think will form in coming weeks,” Westpac strategists wrote in a client note. “Extended European lockdowns have sapped confidence in a synchronised global rebound; meanwhile, the US will have an impressive rebound in coming months amid a strong vaccine roll-out, stimulus payments and economic reopenings,” they said.

The euro edged toward a four-month trough below $1.18355 — trading as low as $1.18360 — after Germany extended a lockdown and urged its citizens to stay at home over the Easter holiday. Worries over the pace of the pandemic recovery were also heightened after a US health agency said the AstraZeneca Plc vaccine may have included outdated information in its data. The flight to safety received an additional nudge when Treasury Secretary Janet Yellen told lawmakers that future tax hikes will be needed to pay for infrastructure projects and other public investments. Yellen was testifying to the House Financial Services Committee along with Federal Reserve Chair Jerome Powell, who reiterated that an expected near-term spike in inflation will be transitory.

That helped tame US Treasury yields, with the benchmark dipping to 1.6048 per cent on Wednesday, continuing its retreat from a more than one-year high of 1.7540 per cent touched last week. Both Yellen and Powell are also scheduled to testify to the Senate Banking Panel on Wednesday. Human rights sanctions on China imposed by the United States, Europe and Britain, which prompted retaliatory sanctions from Beijing, are adding to market concerns. The safe-haven yen was broadly stronger, and Australia’s dollar — considered a liquid proxy for risk — weakened further on Wednesday. The Aussie slipped to as low as $0.75985, a level not seen since early February, and to 82.49 yen for the first time since the start of this month. In cryptocurrencies, bitcoin languished below $54,000, less than two weeks since hitting a record high of $61,781.83.

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Currency bid prices at 122 GMT

Description RIC Last US Close Pct Change YTD Pct High Bid Low Bid Previous Change Session

Euro/Dollar $1.1844 $1.1850 -0.05% -3.07% +1.1854 +1.1836

Dollar/Yen 108.5500 108.5750 +0.00% +5.12% +108.6270 +108.5100

Euro/Yen 128.59 128.65 -0.05% +1.32% +128.7500 +128.4500

Dollar/Swiss 0.9344 0.9338 +0.07% +5.62% +0.9347 +0.9337

Sterling/Dollar 1.3734 1.3754 -0.14% +0.53% +1.3755 +1.3725

Dollar/Canadian 1.2582 1.2588 -0.02% -1.17% +1.2597 +1.2581

Aussie/Dollar 0.7609 0.7626 -0.20% -1.07% +0.7633 +0.7599

NZ 0.6992 0.7000 -0.11% -2.64% +0.7007 +0.6986

Dollar/Dollar All spotsTokyo spots Europe spots Volatilities Tokyo Forex market info from BOJ

Published on March 24, 2021

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