The dollar index extended its gains on Wednesday and demand for riskier currencies was subdued, as investors became more cautious over rising COVID-19 cases, vaccine trials being paused and U.S. fiscal stimulus talks hitting a new impasse. The rally in global equities started to run out of steam on Tuesday and investors’ risk appetite suffered, with the dollar index seeing its biggest daily jump in three weeks and euro-dollar sliding to a six-day low.
With COVID-19 cases surging in Europe, prompting renewed restrictions on activity, FX strategists at ING said that investors are “de-rating” European growth. On Wednesday, most major currency pairs saw only small moves. The dollar index was at 93.637 at 0724 GMT, up 0.1% on the day and having exceeded the previous session’s high of 93.599.
Hopes for a new coronavirus relief package in the United Sates faded. The Senate is due to vote next week on a targeted $500 billion aid bill of the type that Democrats have already rejected. But analysts said markets expect a victory for Democrat Joe Biden in the U.S. presidential elections that will result in more fiscal stimulus.
The pound was the biggest mover in early London trading, falling 0.3% against both dollar and euro as investors became less hopeful a Brexit will be reached. European Union leaders meeting on Thursday and Friday will say that there is still not enough progress in negotiations to seal a trade deal, according to a draft summit decision seen by Reuters.
With risk appetite subdued, investors steered clear of riskier currencies. The euro was down 0.1% against the dollar at $1.17365, having hit a new one-week low earlier in the session. Also in focus is euro area industrial production data is due at 0900 GMT. The International Monetary Fund gave a slightly improved forecast for the hit to global growth in 2020, but lowered their forecasts for many emerging markets.