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US Dollar Shake; Investors Turn to Risk Assets

On Wednesday the US dollar held on to weakness as progress was made in the development of a new coronavirus vaccine and expectations for a fiscal boost from the new US government triggered a shift in funds from the greenback to riskier assets.

Federal Reserve Chair Janet Yellen as the next finance minister has hopes of a viral vaccine that will ease two major uncertainties for investors, which are keeping the US dollar weakening. Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo, said a hike in yields could provide the dollar with some support, but the overall direction would be heading lower.

"The trend has shifted to support risk assets. Yellen will work closely with the Fed and support the economy. US tariffs will remain low for a long time." The US dollar was at $ 1.1901 against the euro on Wednesday in Asia, nearing a two-week low. The British pound bought $ 1.3363, approaching the highest level in more than two months.

Based on the results of the research conducted, the COVID-19 vaccine could be available before the end of the year, and would send US stocks soaring to record highs and reduce the attractiveness of the US dollar.

 

The weakening of the US dollar in the European session

The risk appetite also increased after the outgoing administration of US President Donald Trump began working with Biden's transition. The dollar index, pitting the dollar against six major peers was at 92.129 after falling 0.4% on Tuesday.

The US dollar appeared to weaken in early European trade Tuesday, as clarity over the US political transition emerged and Janet Yellen's appointment to become the next Finance Minister reinforced expectations of expansionary fiscal policy under President-elect Joe Biden.

The Dollar Index, which tracks the greenback against six other currencies, was down 0.3% at 92,252, after seeing its lowest level since September 1 overnight. EUR/USD rose 0.3% to 1.1873, helped by the upward revision to Germany's third-quarter GDP growth to 8.5% from a previously reported 8.2%, while USD/JPY fell 0.2% to 104.30.

Emily Murphy, head of the Public Services Administration, has effectively recognized Biden as the winner of the presidential election, saying she can have the direction and funding to ease her transition to power. President Donald Trump tweeted his approval of the move, although he vowed to keep fighting to try and cancel votes in several states.

US Dollar Direction and Movement Factors

Murphy, Trump's nominee, has held back his decision for weeks after the November 3 election, leaving markets unsure whether there will be a prolonged political vacuum. The elimination of these fears has led market participants to seek more risk, to the detriment of the safe-haven dollar.

Helping positive risk sentiment is the appointment of former US Fed Chair Janet Yellen as Treasury Secretary in the upcoming Biden administration. A while ago Yellen called for more on federal spending from Congress being used to tackle the economic devastation this coronavirus has caused, and thus can be widely seen as a driver of the low interest rate policy that the Federal Reserve has adopted to combat the pandemic.

Adding to the reasons for veering into risky currencies has made promising news recently about vaccines, and this continued on Monday as data pointed to candidate AstraZeneca, which is produced in conjunction with the University of Oxford, to be 90% effective in preventing the Covid-19 virus. This adds to the previous positive news from Pfizer and Moderna.

Elsewhere, GBP / USD rose 0.4% to 1.3371, nearing a 12-week high as market players expect the UK and EU to finally close post-Brexit trade deals. Analysts at ING in their research notes said that what has become a strong belief in their view is that the GBP will face negative asymmetric reactions if the negotiations are carried out in the end fail.

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