Dollar’s bounce fades as risk appetite rises

The dollar was headed for its worst week of the year on Friday, as investors cheered in the Joe Biden administration by buying riskier currencies and refreshed bets that a pandemic recovery could push the greenback lower still.

Against the euro, the dollar is down almost 0.8% this week and it touched a week-low of $1.2173 per euro on Friday. The dollar index has fallen by the same weekly margin, and was steady at 90.075 early in the Asia session.

The euro had found some support from the European Central Bank keeping policy steady and accommodative.

Scandinavian currencies have led the charge higher, with the Norwegian crown up 1.8% for the week, helped by Norges Bank’s decision to hold its policy rate steady, albeit at zero. The Swedish crown is up 1.4% for the week.

The risk-sensitive Antipodean currencies have also been gainers, with the Australian dollar up 0.8% and the kiwi climbing more than 1% over the week so far.

Sterling rose to a 2-1/2 year high of $1.3745 overnight on hopes Britain’s vaccine roll-out can usher in a rebound in growth. It held at that level on Friday, up 1% for the week.

The sentiment-driven moves have eroded gains made by the U.S dollar since the Democrats won control of the U.S. Congress earlier this month. The dollar had risen along with U.S. Treasury yields on expectations of more fiscal stimulus and government borrowing under a Biden administration.

“It’s pretty hard to run away from the enduring strong negative correlation between U.S. equity performance and the U.S. dollar,” said Ray Attrill, head of FX strategy at National Australia Bank, as stock market sentiment spills over.

“I think the market is far happier focusing on the potential positives of the Biden administration’s proposed fiscal plans…rather than any of the negatives,” he said.

“For the time being, while it seems to be onwards and upwards for stocks, it’s put the dollar back on the back foot.”

The dollar was steady against the Japanese yen on Friday at 103.58, but has lost 0.3% over the week.

A heavy sell-off in Bitcoin saw the cryptocurrency drop 5% in Asia trade on Friday to hit an almost three-week low of $28,800.

Later on Friday, preliminary purchasing managers’ index figures are due across Europe and the United States, and weakness is expected as fresh waves of coronavirus infection have driven new lockdowns and curtailed growth.