Dollar Declines as Vaccine Euphoria Fades and Yen Moves towards Worst Week

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On Friday, the U.S. dollar slipped and the risk appetite in currency markets eased up, as worries about the economic impact of the increasing coronavirus cases in the United States and Europe tempered the initial euphoria brought about by a possible vaccine. On Monday, global markets surged after Pfizer Inc. said that its experimental COVID-19 vaccine had proven to be 90% effective in clinical trials. This news saw the dollar go up as investors moved out of their long-yen positions. However, on Thursday, traders became more risk-averse after the heads of the European Central Bank and Federal Reserve stressed that the economic outlook was still uncertain. 

Market analysts said that the market rally that occurred due to the U.S. elections and the announcement of a vaccine has now petered out. However, there is a good chance that the market will not move into panic mode that quickly, which suggested that an economic recovery in the United States could continue, regardless of the rising cases of the coronavirus. In early London trading, the dollar declined, as it fell by 0.1% at 0817 GMT and was trading at a value of 92.884 against a basket of other major currencies. 

There was a 2% decline in the safe-haven yen against the U.S. dollar on Monday. However, the currency continued to make up some of its losses and was trading at about 0.1% up at a value of 105.07. Even though there was a pullback, it was still the worst week for the Japanese yen since March. Regarded as a liquid proxy for risk, the Australian dollar remained mostly flat on Friday and it was also slightly lower for the week as a whole due to caution about the economic impact of the virus won out over the euphoria about a potential COVID-19 vaccine. 

As far as the New Zealand dollar is concerned, it declined by 0.2% as opposed to the dollar, to settle at 0.6823. However, it was up in this week after it had reached its highest level on Wednesday since March 2019, all because of the meeting of the Reserve Bank of New Zealand. The euro had also increased slightly on Friday to reach $1.18105, ahead of the third quarter GDP data of the euro zone that will be released at 1000 GMT. But, analysts said that this figure wasn’t that much important because people are now worried about what the fourth quarter will look like, considering the new lockdowns that have been imposed all over Europe. 

There has been a drop in European shares from their eight-month highs, as the lockdown measures in European countries imposed for curbing the spread of the virus challenge the narrative of the recovery of the global economy. On Friday, the German health minister said that it was too early to predict how long the new lockdown would continue, whereas the French Prime Minister said that they wouldn’t be easing the new measures for the next two weeks at least. As opposed to the Swiss franc, which is considered a safe-haven, the euro was up 1%, as it extended the gains made earlier this week.