Dollar Down Over “Familiar” Themes of Vaccine Optimism and Possible Fed Moves

By Gina Lee

Investing.com – The dollar was down on Monday morning in Asia, heading towards its larges fall since July as lingering vaccine optimism and the possibility of further monetary easing by the U.S. Federal Reserve saw investors retreat from the safe-haven asset.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.15% to 91.688 by 9:56 AM ET (1:56 AM GMT), down some 2.4% for November.

Recent positive news from developers, including Pfizer Inc (NYSE:PFE) and Moderna Inc (NASDAQ:MRNA), regarding their COVID-19 vaccine candidates, had boosted investor sentiment and seen the dollar fall. Even worries about developing and delivering the vaccines failed to significantly curb hopes for an end to the COVID-19 pandemic that has been raging for almost a year now.

However, the ever-rising numbers of new cases globally, alongside fresh lockdowns, helped stem the dollar’s losses as safe-haven currencies received some support.

With the U.S. election and the ensuing confusion over the results distracting Congress from passing the latest stimulus measures, it is now widely expected that the Fed will step in to fill the gap, mostly likely through bond purchases.

“The themes remain familiar: broad dollar weakness amid improving risk appetite … this sentiment is likely to continue into December and the U.S. Fed meeting, at which some further action is likely, given the near-term virus risks in the United States,” ANZ Bank analysts said in a note.

The USD/JPY pair edged down 0.18% to 103.88. Data released earlier in the day showed that industrial production grew 3.8% month-on-month in October, slightly lower than the 3.9% growth seen in September.

The AUD/USD pair was up 0.24% to 0.7401. The NZD/USD pair gained 0.30% to 0.7044, seeing a two-and-a-half year high and headed towards its best monthly percentage gain in seven years.

The USD/CNY pair inched up 0.08% to 6.5791. China’s manufacturing Purchasing Managers Index (PMI) grew 52.1% in November, higher than the 51.5% growth in forecasts prepared by Investing.com and October’s 51.4% reading. The non-manufacturing PMI also exceed expectations, growing 56.4% in November against the forecast 56% and October’s 56.2% figure.

The yuan saw a sixth consecutive month of gains, soaring some 9% from its lowest point in May. Although the yuan saw a similar run of monthly gains in 2013, the recent run exceeds the former in scope as China’s PMIs indicate a continuous economic recovery from COVID-19.

The GBP/USD pair edged up 0.19% to 1.3340. The pound had climbed steadily throughout the month to its highest level since September as investors bet that the U.K. and the European Union would reach consensus on their Brexit deal before the deadline.

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Investors will be looking to Fed Chairman Jerome Powell’s testimony before Congress on Tuesday and Wednesday for further clues into the central bank’s reasoning and the direction of the economic recovery. U.S. labor market data, including the Markit composite PMI, is also due later in the week.

“The dollar is gently drifting to the lows of the year as investors re-allocate portfolios to recovery trades in the rest of the world … while more lockdown restrictions may stand to curb U.S. equity markets, the prospect of the Fed being prepared to add more liquidity should limit any dollar upside. And given that the dollar index has fallen in seven of the last ten Decembers, we do favor gentle dollar downside into the end of the year,” ING strategists Chris Turner and Francesco Pesole said in a note.