European currencies lowered on Wednesday as selling pressure hit several of them. The sterling declined by more than a third of a percent. Meanwhile, the Euro lost some of the week’s gains, tumbling down by nearly 0.2%.
Optimistic sentiment about the fast global economic recovery from the pandemic is tempering. Instead, traders are concerned that it will take much more time to rebound. And there are also fears about the new wave of coronavirus, as the infection cases surged over the last week.
Risk-off sentiment strengthened in early trading on Wednesday in Europe. The U.S. dollar rallied after two straight days of losses. The greenback surged by more than 0.2% against a basket of currencies.
Commerzbank analysts think that caution was warranted considering the risk of a second wave, even though economic data improved during the last months. They stated that the risk of a rebound of the pandemic had not been banished yet, and it could quickly push the markets back into the old pattern. Because of that, risk aversion strengthened, and everybody is buying safe-havens, i.e., the dollar.
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What about the U.S. dollar index?
Despite lowering, the U.S. dollar index still increased by more than 0.9% this week due to an improving economic picture. U.K., eurozone, and U.S. data boosted riskier currencies at the expense of the safe-haven greenback earlier in the week.
On the other hand, the New Zealand dollar tumbled down by almost 1% after the country’s central bank announced that the balance of economic risks remains on the downside. However, it is ready to use additional monetary tools as necessary.
The International Monetary Fund planned to release revised global growth projections in its World Economic Outlook update on Wednesday. Traders were waiting for it as the data could give investors an idea of the extent of coronavirus’ economic damage and the likely recovery pace.
The IMF’s last forecasts in April showed that the world GDP would fall by 3% in 2020. Currently, traders watch surging coronavirus cases in the United States, Germany, and elsewhere closely.1