By Peter Nurse

Investing.com — The dollar edged higher in early European trading Thursday, continuing the previous session’s gains with traders becoming more risk averse after hefty stock market losses.

At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 90.750, adding on to Wednesday’s 0.6% gain.

rose 0.2% at 104.31, fell 0.2% to 1.3655, not helped by U.K. Prime Minister Boris Johnson indicating that the country’s current lockdown to combat the coronavirus may last until March. The risk-sensitive was down 0.6% at 0.7613.

The main equity indices on Wall Street saw their biggest one-day percentage drops in three months during the previous session, as hedge funds liquidated positions to raise liquidity after suffering losses on short positions in other stocks, amid highly speculative retail buying.

This helped boost safe-haven demand for the U.S. currency.

Also helping was the more downbeat tone from the U.S. Federal Reserve as it concluded its first of the Biden era. The central bank signaled concern about the pace of economic recovery.

“A slightly more downbeat assessment from the Fed re-affirms the view of stable policy in coming months,” said analysts at ING, in a research note.

“However, if the vaccination program gains momentum and consumer spending rebounds sharply on re-opening, QE tapering will increasingly become a theme for markets.”

Attention will turn to the preliminary reading of U.S. in the fourth quarter, due at 8:30 AM ET (1330 GMT), to gauge the extent of the slowdown in the world’s largest economy at the end of last year.

Elsewhere, fell 0.2% to 1.2083, after a European Central Bank member floated the idea of interest rate cuts to curb the common currency’s recent strength.

The euro’s level “is something we of course monitor very, very carefully,”  Klaas Knot, who heads the Dutch central bank, said in a Bloomberg TV interview on Wednesday. “It’s one of the factors, not the exclusive factor, but one of the factors we take into account when arriving at our assessment of where inflation is going to go.”

Although the euro has edged lower Thursday, it gained almost 9% against the dollar last year, the biggest annual jump since 2017.

 

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