By Gina Lee
Investing.com – The dollar was up on Thursday morning in Asia, in the wake of a sharp decline in U.S. shares during the previous session. Investors turned to the safe-harbor asset as concerns about excessive valuations remain.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.06% to 90.642 by 8:54 PM ET (1:54 AM GMT), adding to its 0.6% gains from Wednesday.
The USD/JPY pair edged up 0.17% to 104.27.
The AUD/USD pair edged down 0.16% to 0.7650 and the NZD/USD pair inched down 0.09% to 0.7151. The two riskier Antipodean currencies saw losses as decreased risk appetite saw investors trim positions in currencies with close ties to the global commodities trade. The pair’s fall against their U.S. counterpart is also a warning sign of decreased market confidence.
The USD/CNY pair inched up 0.04% to 6.4845.
The GBP/USD pair inched down 0.03% to 1.3681, falling for a second straight session.
U.S. stocks saw the biggest one-day percentage drop in three months during the previous session with Asian stocks mostly following the downward trend on Thursday.
The halt in global shares’ recent rally is due to concerns about a short-squeeze among hedge funds, worries about corporate earnings and delays in COVID-19 vaccinations. Worries that hedge funds were squeezed out of short positions in GameStop Corp (NYSE:GME) and that similar companies will take profits on other assets, also dampened risk appetite.
The halt in shares’ rally could be a short-term boost for the dollar, with some investors remaining positive about the dollar’s prospects.
“Risk aversion supporting the dollar is a healthy correction after a one-way rise in risk assets,” Mizuho Securities chief currency strategist Masafumi Yamamoto told Reuters.
“The base scenario of economic acceleration in the second half of the year remains intact. The AUD will recover but the euro will struggle,” Yamamoto added.
The euro fell, with the dollar rising close to a one-week high against the common currency. European Central Bank member Governing Council member Klaas Knot warned on Wednesday that interest rate cuts could be possible to curb the common currency’s recent gains.
“There is still room to cut rates, but of course that would also have to be seen in conjunction to our overall monetary stance, which is determined by a multiplicity of tools such as asset purchases, TLTROs, forward guidance, they all come into play,” Knot told Bloomberg.
In its first policy decision of 2021, the U.S. Federal Reserve kept monetary policy steady on Wednesday, as widely expected. However, Fed Chairman Jerome Powell warned that the U.S. economy was a long way from full recovery, which some investors viewed as another negative factor.
The U.S.’s fourth quarter GDP, due later in the day, will be a barometer of the U.S. economy’s strength as it continues to recover from the impact of COVID-19.