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Source: Olivier Le Moal, Shutterstock
Summary
- The US Dollar traded at a three-week low as the market gained positive sentiment following vaccine developments.
- The dollar index softened 0.1% to 90.24, its lowest in over two weeks and Japanese Yen fell 0.4% against USD.
- The British Pound gained significantly as it rose to its highest level in about three years pushing past USD1.39.
Tuesday marked a three-week low for US Dollar and a three-year high for Sterling as news surrounding the vaccine injected optimism into investors. The British Pound recorded a year-to-date growth of 1.2% against the US dollar while the Chinese Yuan gained 1.1% year-to-date against the USD.
The dollar index, which is a measure of the value of the Dollar relative to the value of a basket of currencies softened 0.1% to 90.24, its lowest in over two weeks. The Chinese Yuan strengthened to reach past 6.4 per dollar to 6.4033, its highest since mid-2018. On the other hand, Sterling too pushed past USD1.39 on Monday, 15 February to land at USD1.3918 on 16 February. Japanese Yen also slipped 0.4% against the greenback to 105.27 Yen.
A Multitude of Factors at Play
Market optimism generally tends to lift riskier currencies and leaves USD in lurch. For example, Pound has gained in the wake of the developments surrounding the vaccine. Notably, UK’s COVID-19 vaccination programme could reinstate normal working conditions in their economy and is the fastest per-capita vaccination programme in the world.
The commodity currencies like the South African rand, Norwegian crown and the Australian dollar also gained from this dip in the USD, reaching their highest against the USD in three weeks. Rising oil prices worked in favor of the Canadian dollar and the Norwegian crown.
Bitcoin remained volatile, however, as it dipped to USD45,914.75. This came a week after Bitcoin’s rally that saw the cryptocurrency boosting up by 25% due to endorsements by Tesla and BNY Mellon.
Impact to the Yen
Japanese Yen also took a blow following the dip in the USD. Many stocks have gained globally following the improvements to the financial performance of various companies over the December quarter. These gains gave rise to expectations of increasing inflation in the future.
These expectations were boosted due to the price rise in oil observed this week. Consequently, U.S. treasury yields rose to their highest level since March.
These factors may affect the Yen as Japanese investors remain sensitive to changes in the nominal US yields. The Yen has hit its lowest not only against the USD but also against the Euro, Swiss Franc and the Australian dollar.
