investment, News

FOREX-U.S. dollar gains on concerns about new coronavirus strain

NEW YORK, Dec 21 (Reuters) – The dollar rose to a more than one-week high on Monday in a holiday-shortened week on fears about a fast-spreading new coronavirus strain that was discovered in the UK, prompting investors to seek safety in the greenback. Sterling fell, as a consequence, to a 10-day low against the dollar and euro, in line with the yield on two-year British government bonds falling to a record low. Prime Minister Boris Johnson sought an emergency response to the crisis.

The pandemic stress in Europe overshadowed a weekend deal among U.S. congressional leaders for a $900 billion coronavirus aid package. European stock markets slid, while Wall Street shares sank after most of Europe cut off transport with the UK, sowing chaos for families and companies just days before Britain completes it exit from the European Union.

“The new strain of the coronavirus is really scaring everyone and we’re seeing buying of the dollar across the board. It’s the dollar’s best game since March,” said Edward Moya, senior market strategist at OANDA in New York.

In mid-morning trading, the dollar index gained 0.2% to 90.43, after it sank to two-and-a-half-year lows last week, driven by optimism that vaccines would help revive global growth. Earlier in the session, it rose to a two-week high of 91.022.

“I think we will still have a Biden administration that will exercise caution and maintain stricter measures that could limit economic activity,” said OANDA’s Moya. “We were expecting things to start getting to normal by the end of the first quarter; I think we will have to push everything back.”

The euro fell 0.4% to $1.2205, after earlier dropping to a 10-day trough as well. The pound slumped 1.6% versus the dollar to $1.3303, while the euro gained 1.1% against sterling to 91.73 pence.

Unlike the pound, which faces structural challenges when Britain leaves the EU either with a deal or no deal, the euro’s strength isn’t expected to suffer structurally, said Holger Schmieding, chief economist at Berenberg. “It’s a temporary setback in a longer trend,” he said, referring to the euro’s fall on Monday. He expects the currency to eventually resume its rise towards $1.25.

The riskier Australian and New Zealand dollars weakened at the start of the week as investors rushed for haven assets.