Forex traders adopted risk-off sentiment on Tuesday

The dollar index soared by 0.3% on Tuesday, skyrocketing to six-week highs in early London trading. However, ING stated that it doesn’t expect the greenback to see long-lasting gains. The dollar liquidity is not an issue as it was in March, and ING thinks that the Federal Reserve would step in if risk sentiment fell further.

Forex markets turned risk-averse over a surge of Covid-19 cases that caused new lockdown measures in Europe. Furthermore, stocks sold off on Monday. The market saw it as risk-off moves, and as a result, the dollar index hit its highest point in six weeks.

New lockdown measures to curb the second wave of infections pose a serious threat to economic recovery. The greenback continued rising even though European equities opened higher on Tuesday. But the riskier currencies plummeted down. 

How did the Australian dollar and the Kiwi fare?

The Australian dollar plummeted down by 0.5% to 0.7185 on Tuesday, reaching a one-month low. The New Zealand dollar also dropped by 0.4% to 0.6643 per U.S. dollar.

A new statement from the Reserve Bank of Australia added to pressure on the Aussie dollar. The bank declared that it is assessing policy options, including currency market intervention and negative rates. 

Meanwhile, the Swedish and Norwegian crowns collapsed, hitting a two-month low of 9.3615 versus the dollar and weakening against the euro. The common currency also slid by 0.4% against the dollar at $1.17235.

It seems, the U.K. will see further restrictions on activity soon, even though traders expected that Prime Minister Boris Johnson wouldn’t announce a full national lockdown.

The terms “second wave” and “lockdown” had been out there for a while – stated You-Na Park-Heger, the Forex analyst at Commerzbank. She added that thus far, the markets reacted only moderately cautious about the negative news flow. But as the situation seems to be deteriorating, the Forex markets seem to be getting nervous at this stage.