Dollar erases early weakness as upbeat risk sentiment fades; yuan shines

FILE PHOTO: Illustration photo of a U.S. five dollar note
FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration/File Photo

January 4, 2021

By Chuck Mikolajczak

NEW YORK (Reuters) – The U.S. dollar recovered after falling to its lowest level since April 2018 on Monday, as surging coronavirus cases undermined bullish sentiment had that kicked off the new year across global markets and pushed investors into riskier currencies, such as the Chinese yuan and the euro.

With U.S. interest rates pinned at record lows, massive U.S. deficits and a belief that rebounding world trade will drive non-dollar currencies higher, the dollar weakened on the first day of trading in 2021 after falling nearly 7% in 2020.

The Chinese currency was the biggest beneficiary of the weak dollar trade as the yuan rocketed to a two-and-a-half-year high.

The dollar index rose 0.013%, after touching a low of 89.415, a level last seen on April 17, 2018. The greenback turned slightly higher after U.S. stocks turned lower after opening at record levels but the longer-term outlook remains weak.

“The market is hoping this is the year we will see the recovery kick into high gear and that is coming at the expense of the dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC.

“The big negative for the dollar is that the Fed has vowed not to raise rates pre-emptively, so expectations of a longer wait for the Fed to normalize is expected to be a lasting headwind on the dollar.”

The Chinese yuan strengthened to 6.44 yuan per dollar after Beijing cut the weighting of the U.S. dollar in a key currency index basket. That could push the yuan’s value higher against its peers this year, analysts said, while Chinese factory activity continued to accelerate in December.

After a dip on New Year’s Eve profit-taking, the euro was up 1.08% to $1.2268, after hitting a high of 1.231, its highest level since April 2018 as positive economic indicators helped the currency strengthen.

Also, a closely-watched gauge of growth in British manufacturing activity rose to its highest level in three years as factories rushed to complete work before the end of the post-Brexit transition period on Dec. 31.

Sterling, however, relinquished its early gains against the dollar, retreating below $1.37 on concerns about tighter lockdown measures.

The safe-haven Japanese yen strengthened 0.05% versus the greenback at 103.16 per dollar, after Japanese Prime Minister Yoshihide Suga said his government was mulling a state of emergency in Tokyo as coronavirus cases rise.

Bitcoin tumbled, falling as low as $27,734 at one point, after gains over the new year’s break that saw the world’s most popular cryptocurrency rise to a record $34,800. It was last down 3.78% at $31,848.09.

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Currency bid prices at 10:38AM in London (01538 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.2270 $1.2218 +0.42% +0.42% +1.2310 +1.2211

Dollar/Yen 103.1650 103.2900 -0.16% -0.17% +103.3100 +102.7300

Euro/Yen 126.57 126.15 +0.33% -0.28% +126.7800 +126.1100

Dollar/Swiss 0.8812 0.8847 -0.38% -0.38% +0.8845 +0.8785

Sterling/Dollar 1.3571 1.3662 -0.66% -0.66% +1.3703 +1.3562

Dollar/Canadian 1.2738 1.2734 -0.11% +0.02% +1.2739 +1.2666

Aussie/Dollar 0.7681 0.7693 -0.15% -0.15% +0.7740 +0.7681

NZ 0.7183 0.7181 +0.04% +0.04% +0.7230 +0.7183

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Chuck Mikolajczak; editing by Barbara Lewis)