Dollar drops to a two-year low as Covid-19 vaccine boosts appetite for risk assets

Greenback loses safe-haven appeal as investors look to an improving global economy

A currency trader watches monitors at the foreign exchange dealing room of the KEB Hana Bank headquarters in Seoul, South Korea, Thursday, Nov. 19, 2020. Asian stocks followed Wall Street lower on Thursday as anxiety about the economic fallout from rising coronavirus infections in the United States and Europe clashed with optimism about a possible vaccine. (AP Photo/Ahn Young-joon)

The dollar dropped to a two-and-a-half year low as fast-tracked plans to roll out a coronavirus vaccine in the US bolstered appetite for risk assets.

The Bloomberg Dollar Spot Index fell as much as 0.2 per cent to an April 2018 low after US officials said vaccinations may start in less than three weeks. The New Zealand dollar, the pound and the Norwegian krone led gains against the greenback in Asia trading on Monday.

“The vaccine news is favouring the view of a sooner-rather-than-later global economic recovery with the USD losing its safe haven appeal along the way,” Rodrigo Catril, a currency strategist at National Australia Bank in Sydney, said.

“This is a risk-positive, USD-negative backdrop, especially with the Fed likely to remain ultra-dovish for some time.”

The dollar has fallen more than 11 per cent from its record high in March as investors cheer the prospect of a viable vaccine and prospects of improving global growth.

Morgan Stanley recommends selling the dollar in favour of stocks and credit, while Goldman Sachs prefers shorting the US currency against developing nation peers including the Mexican peso and South African rand.

“Fund flows are now showing the expected rotation into EM FX,” Goldman strategists including Zach Pandl wrote in a note. “We would be reluctant to back away from USD shorts with that important tailwind now in place.”

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