U.S dollar tumble, Currency traders more risk averse

U.S dollar index used to gauge the greenback’s strength against 6 major currencies lost about 0.2% to settle at 92.710.

By Olumide Adesina

The U.S dollar dropped significantly at its last trading session.

The plunge in the greenback’s value is coming on currency traders enthusiasm about a possible COVID-19 vaccine coupled with a strong outflow of funds to riskier assets like stocks

What we know: At the time of filing this report, the U.S dollar index used to gauge the greenback’s strength against 6 major currencies lost about 0.2% to settle at 92.710 points.

The macro weighing heavily on the U.S dollar bulls is reports on Pfizer’s experimental vaccine was more than 90% effective, leading currency market traders to be more risk-averse at the last trading session of the week after Federal Reserve and the European Central stressed that the economic outlook remains blurry.

The U.S dollar pulled also dropped against most of its major rivals amid worries about the second wave of COVID-19 caseloads in the emerged markets.

What you must know: The U.S. Dollar Index tracks the greenback against a basket of major global currencies such as the Japanese yen, British pound sterling, Swedish Krona, Euro, etc.

Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries like Europe, and Japan, would need to pay more dollars in fulfilling such payment obligations.

Giving key insights prevailing at the currency market Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics gave market reports on other notable pairs.

“Interest rate differentials – so often a principal driver for FX through both the signaling and carry structures – already show less vigor for currencies. Suggesting the most apparent nominee that will drive FX performance in this ‘new normal regime’ is the comparative growth.
The bullish dials are pointing to AUD, NZD, NOK, and SEK as the first pass candidates, and the laggards are likely to be the GBP, EUR, and JPY. With the dollar smack dab in the middle of all divergencies, I think it’s pretty clear idiosyncratic drivers will be the key in 2021 currency outlooks.”

What to expect: Market analysts expect currency traders to intensify their risk going moves into the coming week, meaning the U.S dollar might continue to be under pressure in the near term.