The U.S. Dollar Stopped Rallying on Friday. Why’s That?

The U.S. dollar’s rally slowed on Friday, while risk-sensitive currencies rebounded. The yen declined sharply. There was a clash between professional short-sellers and individual investors on the FX market in the United States.

Even though the markets’ moves were measured, the earlier buying of greenbacks underscored investors’ concerns about the wild swings in stock prices.

Meanwhile, the Japanese yen hit a two-week low against the U.S. dollar and an almost three-year low versus the Swiss franc. Experts attributed the move to several reasons, such as month-end portfolio reshuffling and the dollar’s yield advantage over Japan.

The U.S. dollar had benefited from safety buying since the start of this week. Investors feared that President Joe Biden’s fiscal spending package would be much less than the proposed $1.9 trillion.

Coronavirus vaccine rollouts around the globe have been running into trouble, as well, adding to traders’ concerns. Production delays have grown into a quarrel between the European Union and drugmakers. They argue about how best to direct the limited supplies available.

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The dollar index initially surged forward but at last, tumbled down slightly at 90.526. It is still higher for the week and almost 0.9% higher this month.

How did the Japanese Yen fare?

Against the Japanese yen, the greenback rallied as much as 0.6% to 104.94, reaching its strongest point since Nov. 16. The yen also declined sharply against the Swiss franc and the euro.

Valentin Marinov, the head of G10 FX research at Credit Agricole, stated that it’s a very interesting move, considering that at the same time global equity indices are suggesting that risk sentiment is not improving as much to justify the yen’s move downward.

The Japanese currency usually rallies when investors are nervous, and stocks plunged heavily on Friday due to the long-short battle in U.S. stock markets.

Meanwhile, the euro climbed up by 0.1% to $1.2137, recovering after growth in Spain and Germany, along with a smaller-than-expected contraction in France showed resilience in the eurozone economy.

Riskier currencies, such as the Australian dollar, declined but were still off their lows of the day. On Friday, most emerging-market currencies plummeted down.

However, the Chinese yuan surged forward by 0.4% to 6.45 yuan per dollar in offshore markets.

On Friday, the People’s Bank of China injected 100 billion yuan into the financial system after a week of reducing liquidity. That had caused concerns that it was tightening monetary policy.

Even though the greenback moved higher this month, most experts think it will weaken in 2021 as the new government implements massive fiscal spending.