Money markets tempered the hopes of a rapid recovery for the global economy. Thus, on Wednesday, the dollar regained some ground after two straight days of losses.
In early trading in Europe, risk sentiment soured. Thus, against a basket of currencies, the United States currency gained more than 0.2%.
Selling pressure hit several significant currencies, including sterling. The sterling was down by more than a third of a percent. The euro then gave up some of the gains of the week, falling around 0.2%.
New Zealand’s central bank said that the balance of economic risks remains on the downside. The New Zealand dollar decreased by almost 1%. As such, it is ready to use additional monetary tools as necessary.
Analysts said that any caution was because of the risk of a second wave of Covid-19 infections. This remained true despite improved economic data.
This data included the most robust rebound on record in German business confidence in Wednesday’s data.
Dollar and Other Currencies
Commerzbank analysts said, in a note, that the risk of a second wave globally had not been banished yet. Thus, it could quickly push the forex market into the old pattern of “risk aversion is on the up, so let’s buy safe havens.” Even under those assumptions, the lockdowns imposed in will probably be much less severe than the first time around.
This week, the dollar index is still up by more than 0.9% on the improving economic picture, although it still lost ground. The United States, United Kingdom, and eurozone data earlier in the week supported riskier currencies at the expense of the safe-haven dollar.
The International Monetary Fund will release global projections of revised growth in its WEO update later on Wednesday.
This will give traders a fresh idea of the extent of the economic damage because of Covid-19 and the likely rate of recovery.