By Peter Nurse
Investing.com – The dollar edged higher in early European trade Tuesday, holding on to overnight gains as traders value its safe haven status while equity markets slump amid renewed virus concerns.
At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.727, climbing to a six-week high.
Additionally, dropped 0.2% to 1.1746, falling to a six-week low, fell 0.2% to 1.2792 after the U.K. government advised people to work from home, effectively abandoning its efforts to get people back into their usual workplaces and seemingly condemning the service sector in many big cities to further weeks of stagnation.
was largely flat at 104.63.
“The equity selloff gathered quite dramatic momentum during the European day and the risk-averse characteristics of the U.S. dollar really came to the fore,” said National Australia Bank (OTC:) head of FX Ray Attrill, in a Reuters report.
This followed hefty losses in equity markets in Europe, with the German dropping 4.4%, dragged down by selling in financial stocks after a fresh dirty money scandal. Weakness on Wall Street followed, with the dropping 1.8%.
Adding to the woes were fresh outbreaks of the Covid-19 virus in Europe, where the new restrictions only add to an existing pattern.
“A lot now depends on whether or not what we’ve seen in the last 24 hours is sustained,” said Attrill. “There’s good reason to think that we could be in for a multiweek period where the dollar at least stops declining.”
This would mark a change in attitude by the foreign exchange market, as ING reported that the latest CFTC positioning data, as of Sept. 15, “keeps adding evidence to the widespread USD bearish narrative.”
“For the first time since 2013, all but one of the G10 currencies reported by the CFTC show net long positioning vs the USD,” ING’s Francesco Pesole wrote in a research note.
Attention, now shifts to U.S. Federal Reserve Chair Jerome Powell, as he makes the first of three appearances on Capitol Hill this week to discuss the raft of emergency measures the central bank has taken to help the country’s economy in the wake of the coronavirus pandemic. Treasury Secretary Steven Mnuchin will also testify.
Elsewhere, fell 0.2% to 6.7934, with the yuan continuing to strengthen. This comes despite the People’s Bank of China fixing its reference rate at a weaker-than-expected level, the first signal that policy makers may want to rein in this quarter’s rapid appreciation in the currency.
The yuan was on track for its biggest ever quarterly gain, according to Bloomberg data going back to 1981, before the recent rebound in the dollar. It’s still up 4.1% since the end of June.
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