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Dollar drops as risk appetite appears to return

Chris Lee

The greenback was down over the course of trading on Wednesday after a series of economic data releases fuelled risk appetite.

The greenback was down over the course of trading on Wednesday after a series of economic data releases fuelled risk appetite.

Data from both the US and Europe appeared to show an improvement compared to previous months during the coronavirus outbreak.

The ‘ADP National Employment Report’ in the country revealed that private payrolls were up by well over 2m over the last month – which was seen as a largely positive result.

Manufacturing data from the US was also positive, with suggestions that the sector could in fact grow over the course of June.

In an increasingly typical situation for the foreign exchange market, a rise in the economic fortunes of the US ended up fuelling a move away from speculating on the dollar’s rise.

The currency was down by 0.3% in its index, which is a tool used by traders to assess how the currency is performing in relation to various others from across the globe.

In its pairs against the particularly risky currencies, such as the Australian and New Zealand dollars, the greenback was down again.

The Aussie dollar was up by almost half a percentage point against the greenback at one stage.

This was in part because the apparent health of the US economy is often linked to an increase in risk appetite.

When the US economy is down, however, it is often interpreted as a sign of potential trouble – and hence a reason to invest more deeply in easily liquidated currencies such as the dollar.

Yet despite this trend, the foreign exchange markets are still far from settled in the aftermath of the pandemic lockdown.

According to analysts, the pro-risk mood that took route in the markets today is not yet bedded in enough for it to be a safe bet for the future.

Economic recovery after the coronavirus is not yet a certainty for any country around the world, and there is a general consensus that there is still a long road ahead.

Elsewhere, the single European currency was spotted up fairly significantly against the greenback, reaching $1.1258 at one point.

IHS Markit revealed its final Eurozone-wide manufacturing Purchasing Managers’ Index over the course of the day.

This was also interpreted in a positive manner – especially when it was bolstered by a suggestion from German data that the manufacturing sector there in particular got smaller by a lesser degree than previously.

However, despite an apparent resurgence in risk appetite from various sources, the dollar was also down in its pair against the safe-haven Japanese yen.

In this pair, it was down by half a percentage point at one stage.

According to analysts, this was in part down to fears over the performances of the Asian stock markets.

The British pound was also up against the dollar – this time by around 0.32%.

This was a surprise to some traders, many of whom are concerned that Britain has still not managed to strike a trade deal with the EU ahead of a key date at the end of this year.

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Chris Lee
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