TOKYO, Jan 28 — The dollar extended gains against most currencies today as a stock market rout due to concerns about excessive valuations boosted safe-harbour demand for the US currency.
The euro nursed losses after a European Central Bank member warned that interest rate cuts are possible to curb the common currency’s recent gains.
The Australian and New Zealand dollars, two currencies considered a barometre of risk appetite, also fell against their US counterpart in a sign of waning market confidence.
Concerns about a short-squeeze among hedge funds, worries about corporate earnings, and delays in coronavirus vaccinations have slammed the brakes on a heady rally in global equities, which could continue to lift the dollar in the short term.
“Risk aversion supporting the dollar is a healthy correction after a one-way rise in risk assets,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“The base scenario of economic acceleration in the second half of the year remains intact.
The Aussie will recover but the euro will struggle.” The dollar edged up to ¥104.29 (RM4.04) following a 0.4 per cent gain yesterday.
Against the euro, the dollar stood at US$1.2102 (RM4.90), close to a one-week high. The British pound fell for a second consecutive session to US$1.3675.
The dollar index stood at 90.679, holding onto a 0.6 per cent gain on Wednesday. Many Asian bourses skidded by more than 1 per cent today after US stocks suffered their biggest one-day percentage drop in three months yesterday.
In addition to concerns about corporate earnings and the economic outlook, worries that hedge funds squeezed out of short positions in GameStop Corp and similar companies will take profits on other assets also fuelled risk aversion.
The US Federal Reserve kept monetary policy unchanged as expected yesterday but did signal some concern about the pace of economic recovery, which some traders said is another negative factor.
US gross domestic product data is due later on Thursday to gauge the strength of the world’s largest economy as it struggles with the coronavirus pandemic.
The onshore yuan fell to a one-week low of 6.4946 per dollar and other Asian currencies also fell against the dollar, highlighting broad strength in the greenback.
The Australian dollar fell to US$0.7647, while the New Zealand dollar slid to US$0.7147 as investors sold currencies with close ties to the global commodities trade to trim riskier positions. — Reuters
