The U.S. Dollar moved near a seven-week high on Tuesday, capitalizing on a sell-off in the Euro. The day before, the single currency fell after bans imposed to fight the coronavirus reduced consumer spending in Germany. The squeezing of short positions on the U.S. Dollar also played a role since their number was too large.
Key Notes
The Euro fell at its highest pace in 2.5 weeks on Monday after the data showed that retail sales in Europe’s largest economy fell more-than-forecast in December, with the continent still struggling to spread vaccines.
Joseph Kapurzo, currency analyst at Commonwealth Bank of Australia said that when people think of selling euros, they invariably buy dollars because this pair is the most liquid in the world.
According to some analysts, the pullback of the U.S. currency was long overdue, as the net sale of the Dollar by speculators was approaching a 10-year high.
Speculators have gambled on the fall of the U.S. Dollar as a safe-haven asset as the $1.9 trillion stimuli offered by the Biden administration prompted investors to invest in riskier assets, even though some Republican senators visited the White House to discuss an alternative $618 billion plan.
Yukio Ishizuki, senior strategist at Daiwa Securities said that some hedge funds may be forced to close their Dollar short positions after they recently burned with their shorts in some U.S. stocks.
Overall, global markets remain wary as institutional investors grapple with the retail frenzy that has propelled GameStop Corp shares and other so-called meme victims up in recent sessions, despite no change in fundamentals.
The Dollar Index was down 0.1% to 90.87 amid further gains in Asian equities but remained close to its overnight high of 91.063, which is the highest level since December 10.
The Euro rose 0.2% to 1.20805 after falling 0.7% on Monday, the highest since January 15.
The Dollar briefly crossed the 105 against the Yen for the first time since mid-November and held at 104.875 yen.
Many view the Dollar’s recovery since the beginning of last month, as a correction after its steady decline. The Dollar Index lost almost 7% in 2020 – on expectations of a comeback in the world economy after the pandemic amid massive fiscal spending and continued tight monetary policy.
However, some think the Dollar’s newfound resilience may reflect declining bearish sentiment for the currency.
Moh Xiong Sim, a currency analyst at the Bank of Singapore that interest rates in the U.S. may be rising due to fiscal stimulus and the fact that the U.S. economy is doing well.
He further added that the Dollar weakening trend has stopped. The fall in the USDJPY rate was part of this trend, and the pair lost some momentum.
The Australian Dollar fell after the country’s central bank said it would expand its quantitative easing program to buy an additional $100 billion in bonds, a decision that many market participants believe could be delayed until next month.
The Aussie was last held at $0.7625, with little change during the day and below the daily high of $0.7662.
