NEWS

Dollar Down, Economic Recovery Hopes Continue to Grow

The dollar was down on Wednesday morning in Asia to near two-week lows as demand for safe-haven assets faded. Hopes for a global economic recovery from COVID-19 continue to grow alongside hopes for further, massive fiscal and monetary stimulus.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.05% to 90.370 by 10:54 PM ET (3:54 AM GMT).
The USD/JPY pair inched down 0.02% to 104.55. The dollar gained 0.1% against the yen, after it dropped to 104.5, the lowest point so far in February, during the previous session.
The AUD/USD pair inched up 0.05% to 0.7742, while the NZD/USD pair inched down 0.04% to 0.7237.
The USD/CNY pair inched up 0.05% to 6.4378. Data released by China earlier in the day showed that the Consumer Price Index (CPI) grew 1% month-on-month but fell 0.3% year-on-year. The Producer Price Index (PPI) grew 0.3% year-on-year in January.
The GBP/USD pair inched up 0.07% to 1.3824. The pound was around 0.1% lower after reaching an almost three-year high during the previous session.
In the cryptocurrency space, Bitcoin was near the $46,500 mark after climbing up to $48,500 overnight on the back of a $1.5 billion investment from Tesla Inc. (NASDAQ:TSLA).

“The economic outlook for the year, according to market consensus, appears to be buoyant,” CMC Markets chief strategist Michael McCarthy told Reuters, pointing to the weaker dollar.

“Sentiment and positioning are key drivers of the market right now,” he added.

Hopes that monetary and fiscal support, solid corporate earnings, and the rollout of COIVD-19 vaccines have all boosted hopes for the U.S. economic recovery. The increased risk sentiment has meant declines for safe-haven assets such as the dollar.

Investors remain divided about the impact that a $1.9 trillion stimulus package proposed by U.S. President Joe Biden will have on the dollar.

Those arguing for a positive impact point to a speedy U.S. recovery compared to other economies boosting the greenback. Those arguing the opposite say that a recovery will drive reflation globally, which will boost riskier assets and contribute to a dollar decline.

Westpac analysts argued the latter in a note, despite the dollar’s strong start in 2021, with the previous week’s U.S. jobs data a key indicator.

“Friday’s disappointing payrolls completely flattened the USD, that data point casting doubt on the budding U.S. outperformance narrative and refocusing minds on the prospect for sustained reflationary U.S. fiscal and monetary policy,” the note added.