The US dollar strengthened against major currencies due to increased expectations of a Fed rate hike. In addition, the surge in European Corona virus cases also increased the attractiveness of the Dollar as a safe haven.
The US Dollar Index holds near a 16-month high in early trading (22/November), surpassing the key 96.0 level.
Statements with a hawkish tendency from Fed officials supported the Greenback, as well as risk appetite which was fading again due to rising COVID-19 cases in Europe.
Richard Clarida and Christopher Waller both suggested to immediately accelerate the pace of stimulus reduction (tapering), because the US economic recovery is considered to have recovered quickly and the inflation rate is increasing.
Market participants saw that the faster completion of the tapering program could be a green light for a faster Fed rate hike.
This is what underlies the sharp strengthening of the US Dollar in trading Friday last week.
Euro Falls Due to COVID-19, Risk Off Spreads
The euro has been one of the worst performing currencies against the US dollar in recent days.
The reason is, the surge in Corona virus cases in the Netherlands, Germany, and Austria sparked concerns over the future of the euro area economy.
The slow economic recovery with inflation tends to be weak makes the prospect of an ECB rate hike unlikely in the near future.
With the recent rise in European COVID-19 cases which has made the prospects for the blue continent's economic recovery even more bleak, it's no wonder the EUR/USD pair tumbled below the psychological 1.3000 level.
"EUR/USD has weakened sharply and is likely to get some attention from market participants amid concerns and restrictions that are starting to be put in place in Europe. We see the short euro options for the current momentum still looking attractive," said Chris Weston, chief market analyst at broker Pepperstone. in a note.
The spread of risk off sentiment over fears of the European COVID-19 case also affected commodity currencies such as the Australian Dollar.
"We expect the AUD to be leaning towards a weaker trend in the near term and possibly move towards the 0.7000 level against the US dollar, dragged down by expectations of a slowing Chinese economy and the RBA's dovish stance," said Joseph Capurso, strategist at Commonwealth Bank Australia.
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