U.S. dollar rallies as risk appetite ebbs; bitcoin pulls back

FILE PHOTO: Representations of virtual currency Bitcoin are placed on U.S. Dollar banknotes
FILE PHOTO: Representations of virtual currency Bitcoin are placed on U.S. Dollar banknotes in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

February 12, 2021

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar gained on Friday after several days of losses this week, as risk appetite soured with stocks and some commodity prices lower, while investors also consolidated gains made on other currencies ahead of a long weekend in U.S. markets.

Financial markets are closed on Monday for President’s Day.

“We’re seeing the consolidation that we expected earlier in the week,” said Erik Bregar, head of FX strategy, at Exchange Bank of Canada in Toronto. “Risk sentiment is still the predominant driver of the dollar right now.”

Bitcoin, meanwhile, was down 2.2% on the day at $46,909, after hitting a record high of $49,000. It was on track for gains of roughly 20% in a milestone week marked by the endorsement of major firms such as Elon Musk’s Tesla .

The world’s most popular cryptocurrency hit a record high overnight after U.S. banking group BNY Mellon said it had formed a unit to help clients hold, transfer and issue digital assets.

“There is clearly some nervousness around this level,” OANDA analyst Craig Erlam told his clients, citing fears that a correction could hit soon after the $50,000 landmark is reached.

In mid-morning trading, the dollar index rose 0.2% to 90.621 after subdued volumes in Asia because of the Lunar New Year.

It was, however, on track to fall 0.5% for the week – its first losing week in three – in what ING analysts described as a “consolidative mood” amid uncertainty about the pace of the U.S. economic recovery.

Weaker-than-expected weekly U.S. jobless claims data on Thursday added to concerns the dollar’s previous rally had priced in too fast a rebound for the U.S. economy.

The dollar was up 0.3% against the yen at 105.04.

There has been a divergence in views among traders this year over how U.S. President Joe Biden’s planned $1.9 trillion fiscal stimulus package will affect the dollar.

Some see it as bolstering the currency as it should speed a U.S. recovery relative to other countries, while others reckon it would feed a global reflation narrative that should lift riskier assets at the dollar’s expense.

The euro fell 0.3% to $1.2091.

The British pound was little changed at $1.3822 against the dollar but was steady against the euro after data showed Britain’s economy suffered a record slump in 2020 but grew in the final quarter.

The Australian, New Zealand, and Canadian dollars all fell against the greenback as risk appetite ebbed.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Julien Ponthus in London)