The dollar shines, the euro suffers, while Covid fears flare up over Europe

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U.S. dollar banknotes are arranged for a photo in Hong Kong on Sept. 7, 2017.

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The safe-haven US dollar traded near a 16-month high against the euro on Monday as fears grow over the impact of rising Covid-19 infections in Europe, with Austria re-imposing a full lockdown and Germany considering it Example to follow.

The greenback was almost its strongest against the riskier Australian and Canadian dollars since early October, with commodity-linked currencies also coming under pressure from a collapse in crude oil.

The dollar received additional support from bullish comments Friday by Federal Reserve officials Richard Clarida and Christopher Waller suggesting that a faster pace of stimulus reduction may be appropriate amid an accelerating recovery and heated inflation.

Ending tapering sooner also increases the possibility of earlier rate hikes. The market is currently being set for the Federal Open Market Committee (FOMC) to begin the rate hike in the middle of next year.

The dollar index, which measures the currency against six major competitors, traded at 96.065, staying within sight of last week’s 16-month high of 96.266.

The euro plunged 0.23% to $ 1.1274 and neared its low since July last year at $ 1.1250 when it fell 0.66% on Friday.

“EURUSD has been in free fall and is likely to attract the lion’s share of the attention of clients looking for mounting restrictions and tensions across Europe,” wrote Chris Weston, chief researcher at Pepperstone brokerage in Melbourne, in a statement to clients.

“Short EUR remains attractive here for momentum and trend followers and tactical traders.”

Europe has once again become the epicenter of the pandemic, accounting for half of the world’s cases and deaths.

A fourth wave of infections plunged Germany, Europe’s largest economy, into a national emergency, said Health Minister Jens Spahn, warning that vaccinations alone will not reduce the number of cases.

Austria is the first country in Western Europe to impose a full Covid-19 ban again from Monday.

Concerns that a slowdown in Europe could hurt energy demand weighed on crude oil, which also fell on the prospect of a US-led emergency stock release.

The dollar gained 0.21% against the oil-linked Canadian loonie to $ 1.26575, closing Friday’s high at $ 1.2663, its strongest level since October 1.

The Aussie was down slightly to $ 0.7234 after falling to $ 0.72285, the top of a low since October 6th.

“We expect the AUD to remain strong in the short term (and) a decline to $ 0.70 is possible” as a slowing Chinese economy and cautious policies by the Reserve Bank of Australia weigh on the currency, Joseph Capurso , a strategist at the Commonwealth Bank of Australia, wrote in a report.

Meanwhile, the USD “may continue its most recent rally this week and hit a new high by 2021,” he said. “Another round of strong US inflation can drive market pricing for FOMC rate hikes and the USD further.”

The dollar was largely unchanged against its other safe haven, the yen, changing hands at 114.03 yen per dollar in the middle of its range for the past week and a half.

In crypto trading, Bitcoin was trading around $ 58,100 and consolidated after retreating from an all-time high of $ 69,000 marked earlier this month.


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