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Dollar extends four-month high against euro as recovery outlooks diverge

25 March 2021 11:21 (UTC +04:00)

The dollar hit a fresh four-month high against the euro on Thursday as the U.S. pandemic response continued to outpace Europe’s, which has been hobbled by extended lockdowns and delayed vaccine rollouts, APA reports citing Reuters.

The safe-haven greenback held on to most of a broad two-day advance, which has been fuelled by worries ranging from Europe’s third COVID-19 wave and potential U.S. tax hikes to the persistent spectre of inflation.

Even Germany’s reversal of a call for a strict lockdown over the Easter period did little to build confidence in the region’s economic outlook, instead compounding discontent with Chancellor Angela Merkel’s handling of the pandemic.

“The weak point in Europe remains around the vaccine rollout amid the rise in new virus cases and the tightening of restrictions ... which likely means the mooted acceleration in Q2 may have to be pushed back by a quarter,” Tapas Strickland, director of economics and markets at National Australian Bank, wrote in a client note.

“The narrative of the U.S. outperforming Europe in the coming quarter remains.”

The euro traded near the four-month low of $1.1809 touched earlier in the Asian session, while a gauge of the dollar against six major peers hovered just below a four-month high of 92.617 reached overnight.

The dollar gained 0.2% to 108.905 yen, another safe-haven currency, as the pair continued to consolidate below 109.

At the same time, the dollar’s rally showed some signs of fatigue, as some of its bruised rivals recovered from lows amid gains in many Asian equity markets.

Australia’s dollar, considered a liquid proxy for risk appetite, bounced 0.3% after earlier dipping to $0.7579, the lowest level since Feb. 2.

The British pound rose 0.2%, climbing out of a six-week trough at $1.3675.

Meanwhile, benchmark 10-year Treasury yields consolidated around 1.6%, a week after hitting a more than one-year top of 1.754%, which had also supported the dollar.

“The U.S. longer-term Treasury yield is lower than the previous week’s level, and that is a very big factor for the improvement in market sentiment,” said Minori Uchida, chief currency analyst at MUFG Bank.