U.S dollar gains against major currencies, U.S Fed warning limits upside

The American dollar gained on Wednesday at London’s trading session, with global investors and currency traders turning to the safe-haven asset amid a resurgence of COVID-19 caseloads.

The American Dollar Index, which monitors the U.S dollar against a basket of other currencies, gained 0.06% to 96.907 at 5.33 am local time.

However, many currency traders’ positive bias on the greenback further weakened over a warning from several U.S. Federal Reserve officials that the rising number of COVID-19 caseloads could distort the fragile economic recovery, with some global central banks stimulus programs due to expire soon.

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“The mood changes day by day, but the dollar looks to be supported for now as investors turn more cautious about the virus,” Yukio Ishizuki, foreign exchange strategist at Daiwa Securities, told Reuters.

Quick fact: The U.S. Dollar Index tracks the American dollar against a basket of other major currencies (like the Japanese yen, British pound sterling, Swedish Krona, Euro). Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to countries like Europe, and Japan, would need to pay less dollars in meeting such obligations.

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“The Fed’s comments on the economy sound sombre. There’s reason to worry because it is hard to see when the virus will be brought under control,” Yukio added.

Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke about the fundamentals triggering the U.S index volatility. He said:

“The USD is stronger this morning, aided by risk aversion and perhaps the continued run of surprisingly strong US data.

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“However, the US data’s comfort blanket is being throttled by the rising COVID-19 case count in many US states that might point to renewed economic headwinds ahead.”