Daily updates on foreign exchange news

Dollar Down, But Fresh COVID-19 Worries Cap Losses

The dollar was slightly down on Monday morning in Asia. However, the U.S. currency was holding ground against riskier currencies over fresh COVID-19 worries and weak European economic data, in turn stretching dollar selling positions as investors turn to safe-haven assets.

Bets against the dollar have become overcrowded, with U.S. data released on Friday showing that net dollar short positions rising to their highest levels since May 2011.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.10% to 90.118 by 11:48 PM ET (4:48 AM GMT).

The USD/JPY pair inched down 0.02% to 103.75.

The AUD/USD pair was up 0.29% to 0.7738. The NZD/USD pair gained 0.32% to 0.7207, with New Zealand investigating its first domestic COVID-19 case in months.

The USD/CNY pair inched down 0.08% to 6.4757.

The GBP/USD pair edged up 0.17% to 1.3708. Data from the U.K. also showed that retail sales grew 0.3% month-on-month in December. U.K. Prime Minister Boris Johnson also said on Friday that the B117 variant of COVID-19 could be 30% more deadly, adding that stricter travel curbs and continued lockdown measures while the infection rate remains “forbiddingly high” could be possible.

Data released on Friday indicated that economic activity in the European Union shrank notably in January. The manufacturing and service purchasing managers indexes came in at 54.7 and 45 respectively, while the Markit Composite purchasing managers index came in at 47.5.

Elsewhere in Europe, the euro capped gains partly due to growing political instability in Italy. Italian Prime Minister Giuseppe Conte has so far failed to secure a ruling majority in parliament, receiving few replies to his appeal to centrist and unaligned upper house lawmakers to join his minority government.

The political impasse saw Italian bond yields rise, with spreads over German Bunds hitting their highest since November.

“Given Conte won a confidence vote, a dissolution of the parliament and a general election is unlikely,” SMBC Nikko Securities chief currency strategist Makoto Noji told Reuters.

However, the situation demonstrates the widespread risks of political instability from popular discontent as COVID-19 fatigue settles in.

“The stock markets’ rally during this pandemic is completely dependent on fiscal expansion and debt monetization by central banks... political instability could delay fiscal measures,” Noji added.

Across the Atlantic, investors remain hopeful that the $1.9 trillion stimulus package proposed by U.S. President Joe Biden will be passed by Congress soon. Senators are hoping to pass the measures before the second impeachment trial of former president Donald Trump, which is due to start the week of Feb. 8.

Meanwhile, the Federal Reserve meets for its first policy meeting of 2021 on Tuesday, with the policy decision to be handed down on Wednesday. The central bank is expected to maintain its commitment to accommodative monetary policy during the meeting.

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Jan 25, 2020