US Dollar Weakens, Riskier Currencies Gain as Market Sentiment Improves
The US dollar is trading weak, holding close to the lowest level seen in six weeks, as commodity currencies surge higher on improving risk sentiment while markets wait for Fed chair Powell’s reaction to expectations for higher inflation. At the time of writing, the US dollar index DXY is trading around 90.10.
On Tuesday, the AUD and NZD have both soared close to three-year highs against the US dollar, buoyed by a rise in prices for key exports from these countries, including crude oil, copper, lumber and milk powder. There are also increasing concerns that inflation could rise across the world even as long-term bond yields see sharp sell-offs globally.
Meanwhile, the GBP also continues to hold strong against the US dollar after having gained almost 3% since the beginning of 2021. Rising optimism about the vaccine rollout spurring a rapid economic rebound in the UK have supported the Cable’s recent bullishness.
The US dollar has also been weakening against its major peers since the past few weeks after the Fed maintained that it would continue to keep its monetary policy loose and interest rates low until the US economy recovers to pre-pandemic levels. The safe haven appeal of the reserve currency has also diminished as markets look forward to the global economic outlook picking up on the back of COVID-19 vaccine rollout across most parts of the world.
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