Dollar Nurses Losses Amid Worries About Second Coronavirus Wave, Biden Transition

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The dollar nursed losses on Tuesday as a return of coronavirus restrictions in some U.S. states and worries about a smooth transition for President-elect Joe Biden offset optimism about a coronavirus vaccine.

The British pound edged higher on media reports the UK could reach a post-Brexit trade agreement with the European Union by early next week.

Moderna became the second U.S. pharmaceutical company in a week to report positive results from trials of a COVID-19 vaccine, considered necessary to eradicate the pandemic.

Last week, encouraging progress in coronavirus vaccine testing helped the dollar rise against the safe-harbour yen and the Swiss franc.

However, reaction in the currency market to subsequent developments has been subdued as the United States struggles to contain a second wave of infections, and with vaccine distribution not expected any time soon.

There is also some uncertainty about Biden’s plans to tackle the coronavirus and stimulate the economy as the Trump administration resists cooperation with Biden’s transition team.

“The market reaction has been limited because it will take time to distribute the vaccine, and there is uncertainty about U.S. politics,” said Masafumi Yamamoto, chief foreign exchange strategist at Mizuho Securities in Tokyo.

“Unless we clear that hurdle, the dollar won’t rise. The dollar looks particularly weak against the yuan.”

The dollar was quoted at $1.1861 per euro, on course for its fourth straight session of declines.

Sterling edged up to $1.3220 and also gained to 89.73 pence per euro.

The greenback held steady at 104.47 yen

Investors in the dollar are looking ahead to the release of U.S. retail sales and industrial production later on Tuesday to gauge the health of the economic recovery.

However, policymakers’ response to a record number of coronavirus cases, hospitalisations, and deaths in several U.S. states is likely to remain of greater concern.

New infections are also increasing in Britain, Europe, and Japan, which further clouds the economic outlook.

The Australian dollar held onto overnight gains against the greenback, while the New Zealand dollar traded near its strongest in more than a year as investors scaled back bets for additional monetary easing.

Minutes from the Reserve Bank of Australia’s most recent policy meeting showed the central bank was ready to provide yet more policy stimulus if needed after cutting rates to record lows.

Traders will also closely monitor the opening of the onshore yuan to see if China’s currency will set a new 28-month high.

– Reuters

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