Dollar drops, Aussie, Sterling gain as risk appetite increases

By Karen Brettell
·2-min read
FILE PHOTO: Photo illustration of one hundred dollar notes in Seoul
FILE PHOTO: Photo illustration of one hundred dollar notes in Seoul

By Karen Brettell

NEW YORK (Reuters) - The greenback dropped and riskier currencies, including the Australian dollar, outperformed on Tuesday as risk appetite improved on hopes that lockdowns may be slowing the spread of the coronavirus in some countries.

Sterling also rose a day after British Prime Minister Boris Johnson was moved into intensive care due to worsening coronavirus symptoms.

Analysts said the British currency is benefiting from the increased risk appetite that is weighing on the U.S. dollar. Johnson's condition, while a concern, is also unlikely to mean a change in the government's policy direction in fighting the virus.

“Despite the sad news about the UK PM Johnson, fatalities in the UK remain relatively low and slowed for the second day, although the apex is still thought to be about 10 days away,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a report.

“High-frequency data on coronavirus infections and death rates continue to stabilize,” Thin said.

In Spain and Italy, which account for over 40% of the world's fatalities, the death rate has been declining for several days, and public discussion has turned to how and when to ease weeks of drastic curbs on personal and economic activity.

New York state, the U.S. epicenter of the coronavirus, is nearing a plateau in number of patients hospitalized, Governor Andrew Cuomo said on Tuesday, a hopeful sign even as deaths in his state and neighboring New Jersey hit single-day highs.

The dollar was last down 0.81% versus a basket of currencies at 99.92. <=USD>

The Australian dollar <AUD=> jumped 1.54% to $0.6180.

Sterling <GBP=> gained 0.93% to $1.2343.

The euro <EUR=> rose 0.98% to $1.0897.

The dollar was down 0.40% against the yen <JPY=> at 108.76 yen.

Japanese Prime Minister Shinzo Abe on Tuesday declared a state of emergency to fight coronavirus infections in major population centres and rolled out a nearly $1 trillion stimulus package to soften the economic blow.

Action by central banks to ease a scramble for dollars that was seen in recent weeks has also helped bring some calm to markets.

"We've got a nice decline in volatility across forex and equity markets," said Kenneth Broux, FX strategist at Societe Generale. "We know central banks have done a very good job in alleviating the strain in dollar markets and that's feeding through."

(Reporting by Karen Brettell; Additional reporting by Iain Withers in London; Editing by Jonathan Oatis and Alistair Bell)