Dollar Weakens; Stimulus Progression Boosts Risk Sentiment

© Reuters.
© Reuters.

By Peter Nurse

Investing.com – The dollar edged lower in early European trading Tuesday, retreating from earlier highs as progress towards a stimulus plan helped risk sentiment.

At 3:05 AM ET (0805 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 90.965, after pushing as high as 91.063 overnight for the first time since Dec. 10.

rose 0.1% at 105.00, rose 0.1% to 1.2066, rebounding after dropping 0.7% on Monday, the most since Jan. 15, following the severe drop in German retail sales for December, while the risk-sensitive fell 0.1% at 0.7611.

Risk sentiment received a boost late Monday as in a step toward bypassing Republicans on President Joe Biden’s Covid-19 relief package. This move came even as a group of Republican senators visited the White House to discuss a scaled-back $618 billion alternative plan.

Also helping were indications that the turmoil in the equity markets was on the wane after retail traders ganged together to buy heavily-shorted stocks such as GameStop (NYSE:) at the expense of the hedge fund industry. . 

“The whole turbulence surrounding this targeted attack on a hedge fund and its short position shivered across assets and may have ignited one of the clearest de-grossing/de-leveraging weeks in a long time,” said analysts at Nordea, in a research note.

However, GameStop stock, which had been run up some 400%, slumped 30% on Monday and has continued to drop in premarket trading Tuesday.

“If we get a more convincing signal that this has indeed been a light positioning wash-out this week, then we are tempted to buy in to (more) risk assets again ahead of the re-opening during the spring,” added Nordea.

Additionally, rose 0.2% to 1.3683, with sterling receiving a boost as the U.K. steps up its coronavirus vaccinations to improve the chances of an economic rebound.

The U.K. has vaccinated over 9 million people from the Covid-19 virus, outpacing the U.S. and and Europe. This has resulted in markets reducing their bets that the will adopt negative interest rates when it meets to discuss monetary policy on Thursday.

 

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