US dollar falls as virus resurgence raises concerns

London

PRESSURE increased on Wednesday against the US dollar which hit its lowest level in over a week as tighter economic restrictions across the United States and Europe tested market optimism over vaccine trials.

Most notably, the retail sales report released by the US Commerce Department showed that spending decelerating as the holiday shopping season approaches, amid a lack of fresh fiscal relief from Washington.

Against a basket of currencies the US dollar eased to 92.250, its lowest level since Nov 9.

"The US dollar drifted lower overnight following disappointing US retail sales and with increasing concerns about the downstream effects of the resurgent Covid-19 pandemic", wrote OANDA analyst Jeffrey Halley to his clients.

"That leaves the Federal Reserve meeting well and truly 'live' in December, with further easing likely to add to the downward pressures on the US dollar heading into 2021", he added.

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Federal Reserve chair Jerome Powell said on Tuesday there was "a long way to go" to economic recovery.

Bitcoin, sometimes regarded as a haven asset, or at least a hedge against inflation, continued its surge over the US$18,000 line, a milestone crossed for the first time in nearly three years.

Amid the uncertainty over the global economic recovery, the safe-haven Japanese yen climbed to a one-week high.

At 103.85 per US dollar, the yen came back to its Nov 9 levels, recouping much of the losses it suffered last week after Pfizer announced it had developed a working Covid-19 vaccine.

The euro was rising about 0.2 per cent at US$1.1881 with investors seemingly not worried about Poland and Hungary blocking the EU's 1.8 trillion euro (S$2.86 trillion) financial package to revive an economy depressed by the Covid-19 pandemic.

"It seems likely that in December, when a summit with physical presence is planned, the EU will accept a compromise on the breach of the rule of law so that both countries can then save face and still accept the EU budget and the recovery fund", Commerzbank strategist Antje Praefcke argued.

"And all will live happily ever after - and therefore no reason to sell the euro", she added.

Budapest and Warsaw vetoed the adoption of the 1.1 trillion euro 2021-2027 EU budget and the 750 billion euro recovery fund on Monday because the budget law included a clause which makes access to money conditional on respecting the rule of law. REUTERS