Dollar Strengthens Due To New Covid-19 Strain Pessimism

The US dollar improved against a basket of major currencies on Monday, December 21st. The DXY dollar index on the day traded in positive territory by 0.20 percent to the level of 90.04. The exchange rate of EUR/USD declined by -0.38% and was at the 1.2216 mark.

After hitting a 2.5-year low in November-December of this year, the US currency stopped dropping at the end of last week and has steadily risen in recent days. This is due to the negative sentiment in global markets about the latest coronavirus strain found last week in the UK. Flights to Britain have been stopped in more than 20 countries, including France, Germany, Italy, the Netherlands, Ireland, Canada, Argentina, Chile and Russia. A complete lockdown was implemented in London and South-East England, which puts pressure on industry and will likely impact the pace of economic recovery. Thus, the risk appetite among investors has decreased dramatically, creating an opportunity for the US dollar to improve before the New Year.

The Chief Scientific Advisor of the United Kingdom, Sir Patrick Vallance, said on Monday that the increased transmissibility of the new strain has been confirmed, and this “probably means that measures (to combat the coronavirus) will be tightened in some areas and will not be weakened.” At the same time, experts note, there is no indication that recently registered vaccines will not protect against strain B.1.1.7.

Given the situation in the UK, the attention of investors has turned again towards the coronavirus pandemic. Other major news, however, was the acceptance of a new fiscal stimulus package by the US Congress. The $2.3 trillion bill will be split into two parts: $900 billion for stimulus programs and $1.4 trillion for state spending pan-financing over the next fiscal year. President Donald Trump would have to sign a corresponding order following ratification by the House of Representatives and the Senate.

As for macroeconomic statistics, the Chicago Fed National Activity Index was released for November, which was 0.27 points against the estimate of 0.4 points, which was lower than the result of 1.01 points last month.

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