U.S. dollar slips as risk sentiment picks up, but keeps positive outlook

© Reuters. FILE PHOTO: U.S. one dollar and British five pound are seen in this illustration taken May 7, 2021. REUTERS/Dado Ruvic/Illustration

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The safe-haven dollar on Wednesday pulled back from more than three-month highs as risk appetite made a comeback with stocks higher, although investors remained cautious amid inflation fears and concerns about the highly-contagious coronavirus variant.

Another safe haven, the Japanese yen, was also down against the dollar, as risk aversion eased.

The Delta variant of the coronavirus, which has caused a surge in infections worldwide, rose to the top of investor concerns along with inflation this week, prompting global stocks to drop sharply on Monday. European equity markets though picked up on Wednesday and Wall Street shares rose as well.

In afternoon New York trading, the dollar index, a measure of its value against six major currencies fell 0.2% to 92.755. On Tuesday, the index hit a more than three-month high.

Market participants though remained bullish on the dollar's outlook, at least over the next few months.

"Between yield differentials and COVID-driven safe-haven demand, the U.S. dollar has been the proverbial belle of the forex ball this week," said Matt Weller, global head of market research at FOREX.com and City Index.

"These themes should continue to support the dollar in the coming weeks, but a recovery in the market's risk appetite, especially if driven by additional monetary or fiscal stimulus from the U.S., would undercut the nascent trend of strength in the greenback," he added.

The Federal Reserve's stimulus measures or quantitative easing have restrained the dollar as it increased the currency's supply in the financial system.

"Currently, we have high inflation in the U.S. which is keeping the door open for the Fed to taper stimulus," said Joe Manimbo, senior market analyst at Western Union (NYSE:WU) Business Solutions in Washington, a scenario that's positive for the dollar.

Against the yen, the dollar rose 0.4% to 110.26.

The Australian dollar, seen as a liquid proxy for risk appetite, fell to its lowest since November before recovering somewhat. It was last up 0.4% at US$0.7357, while the New Zealand dollar rose 0.9% to US$0.6976.

Australia's two largest states reported sharp increases in new COVID-19 cases on Wednesday, a blow to hopes that lockdown restrictions would be lifted as more than half the country's population was subject to stay-at-home orders.

The British pound, which on Tuesday hit its lowest since February, was up 0.6% at $1.3715.

Analysts pointed to a stand-off between Britain and the European Union. Prime Minister Boris Johnson said his government would outline its approach on the Northern Ireland Protocol to Britain's parliament on Wednesday. COVID-19 cases in Britain are also surging. [nL1N2OW18W.

The euro rose 0.2% versus the dollar to $1.1797.

Currency markets are looking ahead to the European Central Bank's (ECB) meeting on Thursday. A dovish tone is expected after ECB President Christine Lagarde foreshadowed a guidance tweak in an interview last week.

In cryptocurrencies, bitcoin rose back above $30,000, having dipped below this key level for the first time in a month on Tuesday. It last traded up 7.4% at $31,991, while ether surged more than 10% to $1,971.79.92.

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Currency bid prices at 2:56PM (1856 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 92.7500 92.9650 -0.22% 3.077% +93.1940 +92.7470

Euro/Dollar $1.1799 $1.1781 +0.15% -3.43% +$1.1804 +$1.1752

Dollar/Yen 110.2600 109.8700 +0.36% +6.72% +110.3850 +109.8000

Euro/Yen 130.09 129.41 +0.53% +2.50% +130.1500 +129.1700

Dollar/Swiss 0.9174 0.9213 -0.41% +3.70% +0.9231 +0.9175

Sterling/Dollar $1.3715 $1.3628 +0.64% +0.39% +$1.3721 +$1.3593

Dollar/Canadian 1.2559 1.2680 -0.95% -1.37% +1.2729 +1.2526

Aussie/Dollar $0.7357 $0.7329 +0.40% -4.35% +$0.7360 +$0.7290

Euro/Swiss 1.0825 1.0851 -0.24% +0.17% +1.0857 +1.0825

Euro/Sterling 0.8602 0.8641 -0.45% -3.75% +0.8658 +0.8600

NZ $0.6972 $0.6917 +0.87% -2.84% +$0.6977 +$0.6894

Dollar/Dollar

Dollar/Norway 8.8720 9.0000 -1.39% +3.35% +9.0540 +8.8750

Euro/Norway 10.4693 10.6107 -1.33% +0.02% +10.6478 +10.4680

Dollar/Sweden 8.6834 8.6878 -0.03% +5.94% +8.7334 +8.6836

Euro/Sweden 10.2459 10.2494 -0.03% +1.68% +10.2656 +10.2318