European currencies rose on Tuesday. The euro climbed up by 0.2% to $1.0932. The Sterling also surged forward by 0.5%, reaching $1.2575, its highest point since March 13. The pound had been closely linked to the performance of the equity market during the previous weeks.
Meanwhile, the Japanese yen rose by 0.1% against the greenback to 107.69 yen. And the Australian dollar soared by 0.5%, hitting a more than one-month high of 0.6432 per U.S. dollar.
Traders don’t expect the current dynamic to last much longer – stated Mark McCormick, the global head of foreign exchange strategy at TD Securities. After this phase of the crisis finishes, the market will have to deal with the underlying data and the uncertainty of the pandemic exit strategies.
What about the U.S. dollar?
The dollar fell on Tuesday after new financial data from China proved much better than investors expected. The country’s March exports decreased by 6.6% from a year earlier, while the forecast was a 14% drop.
Meanwhile, imports fell by less than 1%, and economists anticipated a 9.5% drop. The demand for the dollar weakened as traders’ fears abated. It seems China is rebounding rapidly as the coronavirus pandemic passed its peak in the country.
Still, China’s data wasn’t the only reason for the dollar’s decline. Lee Hardman, the currency analyst at MUFG, noted that the Fed’s aggressive policy response combined with the ongoing improvement in global investor risk sentiment in the near-term is beginning to weigh down more on the U.S. currency.
The U.S. Commodity Futures Trading Commission also released new data on Friday. According to the report, the mood was preempted in the forex markets by leveraged funds last week. Its’ net short U.S. dollar positioning in the previous week touched its highest level since May 2018.
The states are planning to re-open their economies. This leaves traders to abandon the safety net of the most liquid currency, the U.S. dollar, and turn to more risky currencies.