Dollar Down, Even as B.1.1.7 COVID-19 Strain Pushes Safe-Haven Asset Demand Up

Dollar Down, Even as B.1.1.7 COVID-19 Strain Pushes Safe-Haven Asset Demand Up

© Reuters.  © Reuters.

By Gina Lee

Investing.com – The dollar was down on Wednesday morning in Asia, despite caution over the new B.1.1.7 strain of the COVID-19 virus pushing investors turn toward safe-haven assets.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was down 0.23% to 90.338 by 11:27 AM ET (4:27 AM GMT).

The discovery of the B.1.1.7 strain, first seen in the U.K., saw London and southeastern England put under Tier 4 lockdowns. The Philippines banned all U.K. flights from Dec. 24 earlier in the day, joining over 40 countries that have closed their borders to the U.K. and causing travel chaos just a few days before Christmas.

With the U.K. government also negotiating a post-Brexit deal with the European Union (EU), some investors expected dollar weakness to continue in the short term.

“People have some concerns about COVID-19 and about Brexit, but it’s not at the point where the positive sentiment has turned. Given how much the dollar has weakened, it’s feasible to see a retracement higher as people go for the holidays, but in the very near term we expect the dollar to remain weak,” Barclays (LON:) Capital senior currency strategist Shinichiro Kadota told Reuters.

Demand for the dollar had been weakening as the rollout of vaccines and the possibility of more U.S. stimulus measures boosted hopes for a global economic recovery from COVID-19, sapping demand for the dollar and other safe-haven currencies.

The Senate also passed the COVID-19 aid package bill on Monday, following the House of Representatives passing the bill earlier. However, President Donald Trump's threat not to sign the bill seems to have a smaller-than-expected impact on investors.

“I don’t know how much of this is posturing by Trump or if he’s really demanding these changes … the muted reaction so far suggest the foreign-exchange market expects the bill to pass in some form,” said Kadota.

The USD/JPY pair edged down 0.16% to 103.47.

The AUD/USD pair gained 0.43% to 0.7553. Australia continues to deal with a new outbreak of COVID-19 cases in Sydney’s Northern Beaches area. With the number of cases growing to 97, authorities said that the current lockdown will be extended over the Christmas holidays to curb the spread of the virus in the city. New South Wales state Premier Gladys Berejiklian said that decisions on the lockdown in terms of New Year’s Eve celebrations and upcoming sporting events will be made after Christmas.

The NZD/USD pair was up 0.21% to 0.7056 and the USD/CNY pair edged up 0.10% to 6.5492.

The GBP/USD pair gained 0.37% to 1.3409, with the pound aiming to end a three-day slide as time runs out for the U.K. to reach a deal with the EU.

EU chief Brexit negotiator Michel Barnier said the bloc is making a “final push” for a deal, although the two sides still disagree over the matter of fishing rights.

However, investor caution over the pound remained.

“The market is just waiting for the final result of Brexit talks, and in the meantime being swung by conflicting headlines … sterling will remain volatile,” Barclays’ Kadota said.

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