Dollar rises again as markets adjust to vaccine hope and higher yields

NEW YORK (Reuters) – The U.S. dollar rose and the safe-haven yen weakened again on Wednesday as markets continued to adjust to higher interest rates and prospects for economic growth following news on Monday of encouraging results for a coronavirus vaccine.

The euro fell to its lowest level against the dollar in a week as yields on U.S. bonds rose compared with those on European bonds. And, the New Zealand dollar soared to its strongest in a year and a half as traders scaled back bets that the central bank there would move to negative interest rates.

The dollar has started moving up with gains in equities in a switch from its safe-haven status during the COVID-19 crisis when it tended to move in the opposite direction, said Erik Nelson, macro strategist at Wells Fargo Securities.

“This is a huge change from what we’ve seen over the past few months,” said Nelson.

“The increase we’ve seen in U.S. yields could be a really important inflection point for seeing that equity-dollar relationship start to evolve,” Nelson said. “When you look at real or nominal yields, it’s really becoming increasingly attractive to own dollars rather than euros.”

The yield on 10-year U.S. Treasury notes was last up 0.972% up from 0.82% on Friday.

The dollar <=USD> was up 0.3% on Wednesday against a basket of currencies after a flat day on Tuesday and a rise of 0.5% on Monday.

Stocks were up in the United States and Europe with the tech-heavy Nasdaq <.IXIC> advancing 2%, the S&P 500 <.SPX> up nearly 1% and the pan-European STOXX 600 adding 1% to bring its gain for the week to 6%.

Tuesday’s pause in the dollar’s move showed continued restraint and caution about how beneficial the new vaccine will be and when. Coronavirus cases are increasing daily in the U.S. and Europe.

“The (vaccine) news is undoubtedly positive, but of course we need to delve into the detail and think about the ramifications of the whole process,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets. “We need to remember that this is a vaccine which is unproven in terms of certification.”

The euro was down 0.3% on the day <EUR=EBS> to $1.177 against the dollar. The U.S. dollar rose 0.3% to 105.46 versus the Japanese yen <JPY=EBS>.

“With the global daily infections from the coronavirus accelerating yesterday, it seems that concerns over the pandemic’s economic impact may have limited further gains in equities and other risk-linked assets,” said Charalambos Pissouros, senior market analyst at JFD Group.

“It is still too early to start cheering that the COVID era is behind us,” he said.

The dollar gained 0.7% against the trade-sensitive Norwegian crown to 9.084 <NOK=D3>. The Aussie dollar fell 0.2% to 0.7276 <AUD=D3>.

The Canadian dollar <CAD=D3> was weaker against the greenback, at C$1.3069 to the U.S. dollar.

Sentiment for the dollar got a boost on Monday after Pfizer Inc <PFE.N> and BioNTech <22UAy.DE> said on Monday their experimental coronavirus vaccine was 90% effective.

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Currency bid prices at 2:46PM (1946 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index <=USD> $93.0240 92.7260 +0.34% +0.00% +93.2100 +92.6070

Euro/Dollar <EUR=EBS> $1.1771 $1.1812 -0.34% +5.00% +1.1833 +1.1745

Dollar/Yen <JPY=D3> 105.4550 105.2650 +0.36% -2.74% +105.6700 +105.0200

Euro/Yen <EURJPY=> 124.17 124.36 -0.15% +1.82% +124.6700 +123.9300

Dollar/Swiss <CHF=EBS> 0.9171 0.9151 +0.23% -5.21% +0.9192 +0.9139

Sterling/Dollar <GBP=D3> 1.3211 1.3276 -0.48% -0.38% +1.3314 +1.3189

Dollar/Canadian <CAD=D3> 1.3069 1.3036 +0.26% +0.61% +1.3075 +1.3010