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Dollar Slides, Positive News on Vaccine

The U.S. dollar drifted lower in early European forex trading on Tuesday. It is continuing the sharp losses seen as signs of progress for a Covid-19 vaccine sparked a growing risk appetite.

The Index stood at 99.438, down 0.2%, well off Monday’s three-week high. Meanwhile, USD/JPY rose 0.1% to 1.0738.

Clinical results suggested its vaccine has a “high probability” to protect from coronavirus disease. This was a statement late Monday from Moderna, a U.S. drug-maker.

The positive update raised hopes for the discovery of a vaccine. This prompted investors to dump the safe-haven USD for currencies which may offer a greater reward.

Junichi Ishikwa, senior IG Securities FX strategist said the improvement in risk sentiment was because of hopes for a vaccine.

Volatility has fallen for stocks and dollar-funding costs have lowered. It’s easy for the USD to fall and for other currencies to ride the U.S. currency’s losses higher.

Federal Reserve chairman Jerome Powell will testify on Tuesday before the Senate Banking Committee alongside Treasury Secretary Steven Mnuchin. This is to update government officials on the economic stimulus programs approved so far.

The issue of negative interest rates could be raised. They expect Powell to repeat that a negative policy rate is not on the cards right now.

On Euro, Dollar and Pound, Dollar Pairings

On late Monday, forex news reported that France and Germany were proposing a 500 billion euro European recovery fund. It is to be distributed to EU countries worst affected by Covid-19. The funds will be provided as grants rather than loans.

This is a shift in position by Germany, who had previously rejected the idea of nations sharing debt.

However, other EU countries must agree with the proposal. The proposed shared debt has proved an extremely difficult hurdle to pass in the past.

Still, the euro, dollar pairing climbed 0.2% to 1.0936, reaching levels last seen at the start of May.

The Fed members are doing their best to rule out the possibility of negative interest rates. But their U.K. equivalents are doing exactly the opposite.

Over the weekend, BOE chief economist, Andy Haldane, said the central bank looked at negative interest rates more urgently. The rate-setter Silvana Tenreyro talked up the benefits of such rates on Monday, citing the experience of other EU countries.

This comes as the number of Britons seeking jobless benefits soared by 856,500 to over 2 million in April. This has been the most on record.

Moreover, on forex, the pound dollar pairing traded 0.5% higher at 1.2264.

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