Dollar Edges Up, a Cautious Week Begins

Dollar Edges Up, a Cautious Week Begins

The dollar edged higher in early European forex trading on Monday, starting a fresh week in a cautious vein. This is amid last week’s turmoil in the equity markets.

The Dollar Index was up 0.1% at 90.575 at 3:05 AM ET (0805 GMT).

The USD/JPY pair rose 0.1% at 104.72 while the EUR/USD pair fell 0.1% to 1.2125. The risk-sensitive AUD/USD climbed 0.2% at 0.7659.

Since the end of October, Wall Street’s main equity indices suffered their worst week. Hedge funds were forced to liquidate positions to generate funds. Retail traders ganged together to buy heavily-shorted stocks, such as GameStop and AMC Entertainment.

Some of this pressure seems to have eased early Monday. But foreign exchange traders are still wary of this war erupting once more. 

Foreign exchange traders are happy to remain in the dollar safe haven, at least for now. That is with the disagreements on Capitol Hill over President Joe Biden’s proposed $1.9 trillion Covid relief bill. In addition, the delays to global vaccine rollouts. 

In the past few days, an unusual driver of risk appetite has been the retail-trading-induced high volatility in some stocks. Additionally, the following trading restrictions by online platform Robinhood, analysts at ING, in a research note have said.  

That surely remains one thread to follow and might keep investors jittery for a little longer. This suggests fresh defensive dollar positions may not be unwound just yet, the ING analysts added.

Risk Sentiment

Risk sentiment had been buoyed for many weeks. This was after President Biden proposed a $1.9 trillion Covid relief package. 

This bill, however, is struggling to make its way through Congress. A group of 10 Republican senators sent him a letter on Sunday, urging him to consider a scaled-down proposal.

Furthermore, the EU and the U.K. had a public falling out on Friday. This was over the supply of Covid-19 vaccines to the continent. 

At one point this threatened to create a border between Northern Ireland, which is in the U.K., and EU member Ireland.  

German retail sales plunged far more than expected in December. The sales slumped 9.6% on the month in real terms, as tightened lockdown measures choked consumer spending.

Elsewhere, the NZD/USD pair added 0.15% to 0.7201. The GBP/USD pair gained 0.27% to 1.3735.