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US Dollar Dips as Risk Appetite Improves, More Monetary Easing Awaited

US Dollar Dips as Risk Appetite Improves, More Monetary Easing Awaited

Posted Tuesday, December 1, 2020 by
Arslan Butt • 1 min read

The US dollar is trading somewhat bearish early on Tuesday, with its safe haven status still under pressure over the optimistic mood in markets surrounding progress in vaccine development against COVID-19. At the time of writing, the US dollar index DXY is trading around 91.81.

The US dollar has been weakening against riskier instruments over the past few sessions as markets cheered positive reports about the development of effective vaccines against COVID-19 by multiple pharmaceutical companies. This has weakened the appeal of the reserve currency and strengthened riskier currencies, especially the AUD and NZD.

The positive developments surrounding vaccines has increased optimism that the pandemic could be brought under control and economic recovery could then resume, causing investors to short their positions on the greenback. Meanwhile, the EUR and the GBP have also made gains against the dollar, with GBP traders turning increasingly bullish about the prospects of a post-Brexit trade deal between the EU and the UK being finalized soon.

Additional weakness in the US dollar was also driven by an increased likelihood of the Fed announcing more monetary easing measures to combat the weakness in the US economy due to the pandemic. With the number of cases continuing to rise in the US as the country heads into winter, traders are widely anticipating that the central bank could announce some measures in the December meeting.

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