NEW YORK (Reuters) - The dollar fell on Tuesday as investor risk appetite rose, boosted by continued U.S. Federal Reserve action to battle economic devastation caused by the pandemic as well as potential treatments that the World Health Organization said seemed to be limiting the severity of the COVID-19 respiratory disease.
FILE PHOTO: U.S. dollar banknote is seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/Illustration
Even a small hint of positive coronavirus news limits the dollar’s appeal as a safe-haven currency, though declines were kept in check by growing fears of a second wave of infections.
Earlier, renewed U.S.-China trade tensions supported the greenback.
“Everybody is feeling a little better right now. The risk sentiment pendulum has swung from negative in Asia to currently positive,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto.
There are several drivers for the dollar’s move, he noted.
“The Fed buying corporate bond ETFs today is adding to the risk-on move,” Bregar said.
The Fed on Tuesday starts its long-anticipated program to buy corporate bonds and the exchange traded funds that track them.
Risk appetite also improved after WHO said some treatments appear to be limiting the severity or length of the COVID-19 disease and that it was focusing on learning more about four or five of the most promising ones. [L8N2CU45N]
That said, analysts said risk-taking has been limited by persistent concerns about the current global health crisis.
New coronavirus infections have been found in China, South Korea and Germany, where respective governments have eased lockdown restrictions.
A re-emergence of coronavirus cases could dent a global economic recovery on the back of an injection of monetary and fiscal stimulus.
In midday trading, the dollar index was down 0.4% at 99.807 =USD.
The greenback was also broadly supported by the possibility of U.S. President Donald Trump instructing a federal pension fund not to buy Chinese equities, making investors cautious on U.S.-Sino relations.
The White House on Monday named three nominees to sit on a board that oversees federal employee pension funds, raising the potential for the reversal of a decision to allow one of the funds to invest in Chinese companies under scrutiny from Washington.
The euro was last up 0.6% against the U.S. currency at $1.0865 EUR=EBS, though still not too far from the $1.0636 low touched at the end of March when the pandemic sent markets into turmoil.
The dollar, meanwhile, fell 0.3% against the yen to 107.30 JPY=EBS.
(Graphic: Euro steady vs dollar but close to March low - here)
The Australian dollar AUD=D3 fell earlier, dipping to a five-day low of US$ 0.6432 after China banned some Australian meat imports. It later pared losses as Australia's trade minister played down the issue as a technicality and was last trading up 0.3%.
It was last up 0.3% at US%0.6510.
Traders will be looking for Fed Chairman Jerome Powell’s speech on current economic issues on Wednesday, when his views on the future of the monetary policy will be scrutinised closely.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Olga Cotaga in London and David Gregorio
https://uk.reuters.com/article/global-forex/forex-u-s-dollar-falls-as-risk-appetite-rises-but-sentiment-tentative-idUKL8N2CU5A3
2020-05-12 15:57:00Z
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