US Dollar (USD) Rises as Souring Risk Sentiment Drives Demand for Safe-Haven Currencies

Published: 17 Mar at 2 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Australia, New Zealand, USA, Ireland, Italy,

Pound (GBP)

The Pound (GBP) held steady today as Sterling investors look ahead to Thursday’s Bank of England (BoE) policy decision.

The Bank is largely expected to hold interest rates at 0.1% but following bullish comments from the BoE’s Governor Andrew Bailey – who said he was ‘more positive’ about the outlook for the UK economy – some GBP investors are feeling optimistic.

With tensions between the UK and the EU erupting over the Northern Irish border and several countries suspension of Oxford’s AstraZeneca Covid-19 vaccine, however, UK markets are remaining cautious on a possible re-emergence of complications following Brexit.

This week has seen a general lack of influential UK economic data, so the GBP/EUR and GBP/USD exchange rate has dipped compared to previous weeks.

Euro (EUR)

The Euro (EUR) struggled this week due to rising concerns over the European Union (EU) facing a third-wave of Covid-19 cases.

As a result, EUR investors are becoming increasingly concerned that many countries within the EU could once again enforce lockdown restrictions.

Italy has reported more than 27,000 new cases of the coronavirus, with 380 deaths being reported on Friday alone.

Italian prime minister Mario Draghi said:

‘More than a year after the start of the health emergency, we are unfortunately facing a new wave of infections. The memory of what happened last spring is vivid, and we will do everything to prevent it from happening again.’

Consequently, EUR traders are remaining cautious as the outlook for the Eurozone’s economy remains largely grim.

US Dollar (USD)

The US Dollar (USD) has benefited from market jitters today, with investors seeking out the safe-haven ‘Greenback’ ahead of the US Federal Reserve’s latest policy meeting.

Mohit Kumar, an analyst at Jefferies, commented:

‘Given the uncertainty over the Fed meeting we would recommend reducing risk going into the meeting. Our base case is that Powell would not push back against the recent rise in rates and the dot plots would validate market’s thinking that the Fed is behind the curve.

‘It could be a modest disappointment for investors seeking a more dovish intervention from the Fed.’

As a result, investors are concerned that the outlook for the US economy, which is the largest in the world, could be largely downbeat.

This would drive demand for safe-haven currencies as the outlook for the global economy would suffer as a result.

Australian Dollar

The risk sensitive Australian Dollar (AUD) suffered from souring risk sentiment today.

Alongside concerns for the US economy and the latest Federal Reserve policy meeting, US-North Korea tensions are also weighing on global risk sentiment.

Additionally, rising Covid-19 cases in Europe are also limiting the appeal of the ‘Aussie’.

New Zealand Dollar (NZD)

The New Zealand Dollar (NZD) – also a risk-sensitive currency – has also suffered from the same issues as the Australian Dollar today.

Ongoing concerns for the global economy are limiting demand for the risk-sensitive ‘Kiwi’.

As of Wednesday, 17th March 2021, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1662, GBP USD exchange rate was 1.3974, GBP AUD exchange rate was 1.7887, and GBP NZD exchange rate was 1.9275.

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