- Traders handled the dollar cautiously ahead of the Fed policy meeting.
- EU and UK currencies appeal to traders amid the jostle for coronavirus vaccine doses.
- China’s new trade deal with New Zealand draws more attention to the yuan.
The coronavirus pandemic continues to weigh on forex market sentiment. Traders are betting on countries’ currencies that seem to be leading efforts to protect their economies from further pandemic shocks. Traders are also closely watching central banks’ stimulus measures.
Dollar struggles as traders focus on Fed meeting
The US dollar index fell 0.21% to 90.20. The index compares the greenback’s strength against a group of currencies of America’s major trading partners. The basket of currencies weighted against the dollar are euro, yen, sterling pound, Canadian dollar, Swedish krona, and Swiss franc.
The dollar fell 0.17% against the euro, which accounts for about 60% of the index’s weight. It tumbled nearly 0.1% against the Japanese yen, representing 14% of the index’s weight. The greenback fell 0.31% against the British pound, which accounts for 12% of the basket’s weight. It declined 0.27% against the Canadian dollar, whose weight in the basket is 9%. The greenback retreated 0.07% against the Swiss franc but edged up 0.24% against the Swedish krona.
The dollar wavered as traders focused on the Fed’s latest policy meeting coming up later Tuesday. Although the greenback fell more than 7% in 2020, it has made some small gains in 2021 as prospects of bigger government spending has buoyed hopes of quick economic recovery.
Euro ticks up as the EU presses for more vaccine doses
The common currency euro gained ground against several major currencies. It rose more than 0.20% against the US dollar and ticked up 0.08% against the Japanese yen. It also gained 0.08% against the Swiss franc.
The euro gains momentum as EU states pressed for more vaccine supplies. The bloc threatened to block AstraZeneca’s exports to Britain and other countries if it didn’t supply it with the number of vaccine doses it purchased. The EU purchased 100 million vaccine doses from AstraZeneca to fight the coronavirus pandemic. But the company faces a shortfall that could lead to the EU only receiving half of the vaccine amount it ordered.
Pound firms up as the UK exudes confidence over vaccine supply
The British pound ticked up 0.36% against the US dollar and rose 0.19 against the euro. It jumped 0.21% against the Japanese yen and advanced 0.23% against the Swiss franc. The pound also gained against the Chinese yuan and Canadian dollar.
The pound price rises as UK’s vaccine minister Nadhim Zahawi said the country is confident of receiving enough supplies to meet its target of vaccinating 15 million people by mid-February.
Coronavirus vaccine supplies have become tight as countries seek large amounts of doses to fight the pandemic and protect against further economic weakness. The UK is among the leading countries in the vaccine rollout, and traders seem to bet that is positive for the pound.
Yen struggles as Olympic plans remain in doubt
The Japanese yen ticked up 0.17% against the US dollar but fell 0.04% against the euro and 0.24% against the British pound. The yen tumbled 0.34% against the Australian dollar, dropped 0.06% against the Canadian dollar, and retreated 0.05% against the Chinese yuan.
The yen wavers as a cloud of doubt continues growing over Japan hosting the Olympics this summer. Polls show that the vast majority of Japanese want the event canceled once again to allow the country room to bring the coronavirus pandemic under control.
If the Olympics is canceled again, forex traders bet it would diminish demand for yen, hence adversely impacting its value. But some traders remain bullish on the yen – after Japan’s central bank forecast the economy could recover to pre-pandemic levels by March 2022.
Yuan advances as China continues to expand its global clout
The Chinese yuan advanced 0.22% against the US dollar and gained 0.14% against the Japanese yen. The Chinese currency also edged up 0.12% to the Swiss franc. But it retreated 0.06% against the euro and 0.27% against the British pound.
The yuan looked firm as China inked an expanded trade deal with New Zealand. China is asserting itself as a multilateral trade champion, and some forex traders believe those efforts should be good for the yuan.
