U.S. dollar jumped on Friday while riskier currencies fell
The U.S. dollar climbed up slightly on Friday after three days of losses. On the other hand, risk-on currencies tumbled down as global equity markets paused rallying after another week of record highs due to bleak economic data.
The greenback had plummeted down versus a basket of currencies for the past three sessions. Market optimism about U.S. President Joe Biden’s fiscal stimulus plans encouraged traders to buy riskier assets. As a result, riskier currencies such as the New Zealand and Australian dollar surged forward.
However, with market sentiment pulling back, that trend paused on Friday. Global shares fell from record highs, and the U.S. currency steadied instead, gaining less than 0.1% on the day at 90.147. Despite that, the dollar index remained on track for its biggest weekly loss since mid-December.
Kit Juckes, the head of F.X. strategy at Societe Generale, noted that the greenback is generally stronger after the S&P hit a new high yesterday and then paused. Besides, Asian equity markets were all lower as well.
He added that in the near-term, the dollar’s weakness is the underlying driver of everything because capital is attracted to places that are bolstered by Covid-19 vaccines, rallied by easy Fed policy and low U.S. rates.
How did the Australian dollar and other currencies fare?
The Australian dollar plummeted down after disappointing retail sales data. Despite that, the Aussie was still set for a weekly increase. On Friday, it dropped down by 0.7% at 0.7711. Meanwhile, the New Zealand dollar tumbled down around 0.6% at 0.7178 against the U.S. dollar.
Gloomy economic data hasn’t helped to improve mood. According to U.K. data, British retailers struggled to recover in December.
In the eurozone, economic activity lessened markedly in January as strict lockdowns to contain the Covid-19 pandemic damaged the bloc’s dominant service industry.
Furthermore, new data showed that in Japan factory activity slipped into contraction in January. The services sector was also more pessimistic as new restrictions to fight a COVID-19 resurgence hit sentiment.
Michael Hewson, the chief market analyst at CMC Markets U.K., stated that despite the positive vaccine news, it is clear that there will be no similar rebound in economic activity until such times as lockdowns start to get eased, perhaps sometime in the second quarter.
On Friday, the euro traded flat against the U.S. dollar, at $1.2172. Before that, the common currency increased on Thursday after the European Central Bank’s policy rate announcement.
The Norwegian crown also fell due to lower commodity prices, tumbling by more than 1% versus the euro at 10.3275.
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