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Dollar up on COVID-19 case rise, gains curbed by Fed easing expectations

Kitco News

LONDON (Reuters) - The dollar strengthened on Thursday as broad optimism about COVID-19 vaccines ran into worries about rising infection numbers and risks to the fragile global economic recovery.

The U.S. death toll from COVID-19 passed 250,000 on Wednesday as New York City’s public school system, the country’s largest, called a halt to in-classroom instruction, citing a jump in infection rates.

The dollar was also caught between two opposing forces, with a safety bid supporting it while renewed speculation over monetary easing to boost the economy held it back somewhat.

Euro/dollar shed 0.2% to last trade at $1.1827 EUR=EBS.

With fiscal stimulus plans falling by the wayside as President Donald Trump’s refusal to concede electoral defeat consumes lawmakers’ attention, speculation is growing that the Federal Reserve may further loosen monetary policy in December.

Two Fed officials on Wednesday held out the option of doing more, and Treasuries have rallied in anticipation of a possible expansion of Fed bond buying.

An index which tracks the dollar against a basket of currencies was up 0.1% at 92.59 =USD, though close to the weakest it has been since August.

Still, the Scandinavian currencies and the Australian dollar - beneficiaries of the dollar’s recent decline - lost strength.

The Norwegian crown fell 0.4% against the U.S. dollar at 9.0375 NOK=D3 and by 0.1% versus the euro at 10.6930 EURGBP=D3 respectively. The Swedish crown was down by the same extent against the greenback at 8.6230 SEK=D3, while the Aussie dollar also fell 0.4% at 0.7276 AUD=D3.

“It seems that market participants are confused. They don’t know where to place more emphasis, on the positive vaccine headlines or on the acceleration of the infections from the pandemic,” said Charalambos Pissouros, senior market analyst at JFD Group.

Pissouros said he was sticking to his guns, however, “that any declines in risk-linked assets are likely to stay limited.”

“We would treat them as corrective moves within the broader uptrend, which we expect to eventually resume,” he said.

Safe-haven Japanese yen fell 0.2% against the greenback to 104.10 JPY=EBS, having gained 1.6% in the week since Pfizer announced promising trial results on its COVID-19 vaccine.

U.S. jobs figures will be closely watched on Thursday as a key factor ahead of the Fed’s next moves, and at 1000 GMT European Central Bank President Christine Lagarde appears at a European Parliament Committee hearing in Frankfurt.

Elsewhere, sterling dipped 0.4% to $1.3210 GBP=D3 and 0.2% at 89.53 pence against the euro after The Times newspaper reported that European leaders will urge the European Commission to publish no-deal Brexit plans as the year-end deadline approaches.

Bitcoin BTC=BTSP was relatively stable, trading at $17,666, not far from the all-time high of nearly $20,000 reached three years ago.

Reporting by Olga Cotaga; Editing by Hugh Lawson and Angus MacSwan

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