Dollar near 16-months high, euro further suffers from Covid

On Monday, the safe-haven US currency rose around a 16-month high against the euro, as concerns over the impact of rising Covid-19 infections across Europe grew. Meanwhile, Austria reimposing a complete lockdown, Germany is also considering doing the same.

The dollar was approaching its highest level versus the riskier Australian and Canadian dollars since early October, with commodity-linked currencies also under pressure from a drop in crude oil prices.

Outlook on rate hikes for the remaining of the year

On Friday, Federal Reserve officials Richard Clarida and Christopher Waller made positive comments, suggesting that a quicker rate of stimulus withdrawal may be appropriate given the economy’s rapid recovery and high inflation.

A speedier end to the taper raises the potential of sooner interest rate hikes as well. The Federal Open Market Committee is expected to begin raising rates by the middle of next year, according to market expectations.

The dollar index compares the greenback to six major currencies. This index was trading at 96.065, close to last week’s 16-month high of 96.266. The euro fell 0.23 percent to $1.1274, reaching its lowest level since July of last year when it fell 0.66 percent to $1.1250.

Europe and covid outbreak

In a letter to clients, Chris Weston, head of research at Melbourne brokerage Pepperstone, said, “EURUSD has been in free-fall and will likely receive the lion’s share of attention from investors seeking for a play on growing limits and tensions throughout Europe.” He added that “Short EUR remains appealing for momentum, trend followers, and tactical traders.”

Europe has once again become the pandemic’s center, accounting for half of all cases and fatalities worldwide. According to Health Minister Jens Spahn, the fourth wave of infections has thrown Germany, Europe’s largest economy, into a state of emergency, warning that vaccines alone will not be enough to reduce case numbers.

From Monday, Austria will be the first country in Western Europe to reimpose a full Covid-19 shutdown. Fears that a recession in Europe would affect energy consumption weighed on crude oil, which was also losing ground as the prospect of a US-led emergency stockpile release approached.

The dollar gained 0.21 percent against the Canadian dollar, which is tied to oil, to C$1.26575, closing in on Friday’s high of C$1.2663, the highest since October 1. The Australian dollar fell to $0.7234, having gone as low as $0.72285, the lowest level since October 6. The dollar was fairly unchanged versus the yen, trading at 114.03 yen per dollar, roughly in the middle of its range over the previous week and a half. Bitcoin was trading about $58,100 in crypto, stabilizing after falling from an all-time high of $69,000 earlier this month.