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Dollar Up, Pound Slides Over New U.K. Lockdowns

ForexDec 20, 2020 09:13PM ET
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By Gina Lee – The dollar was up on Monday morning in Asia, with investors turning to the safe-haven asset as many countries tightened restrictive measures against the COVID-19 virus.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.40% to 90.190 by 9:06 PM ET (2:06 AM GMT). The dollar rebounded from the two-and-a-half year lows seen during the previous week, when it touched 89.729 on Thursday for the first time since April 2018.

The U.K. was the latest country to imposed fresh, strict lockdowns in order to curb a new strain of the virus. This led to European neighbors, including France, Germany, Italy, the Netherlands, Ireland and Belgium closing their borders to travelers, and in some cases freight from the U.K. Other countries are also mulling similar bans.

“The lockdown news and the stalemate on Brexit is keeping the market nervous … dollar strength is largely being driven by the move lower in the pound,” National Australia Bank (OTC:NABZY) (NAB) senior currency strategist Rodrigo Catril told Reuters.

The rapidly spreading strain is causing alarm, overshadowing the news that the U.S. Congress reached a deal for a $900 billion COVID-19 aid package, with the House of Representatives to vote on the package later in day, followed by the Senate.

The Food and Drug Administration also granted emergency use approval for Moderna Inc's (NASDAQ:MRNA) vaccine mRNA-1273 over the weekend.

The USD/JPY pair inched down 0.02% to 103.28.

The AUD/USD pair lost 0.40% to 0.7593 and the NZD/USD pair was down 0.34% to 0.7101. The riskier Antipodean currencies weakened at the start of the week as investors rushed towards safe-haven assets. Australia’s largest city of Sydney is also battling a fresh COVID-19 outbreak.

The USD/CNY pair was up 0.22% to 6.5495.

The GBP/USD pair slid down 1.05% to 1.3377 over the U.K. lockdown news.

Meanwhile, talks for a post-Brexit trade deal with the European Union (EU) will continue later in the day, but both sides failed to reach an agreement. The EU’s fishing rights in British waters continues to be a particular sticking point, with U.K. Health Minister Matt Hancock on Sunday calling them “unreasonable demands” that should be dropped by the bloc.

With the clock ticking towards the end-of-year deadline, the risk of the U.K. exiting the EU with no deal is rising.

However, NAB’s Catril remained cautious about the greenback, although he forecasted that the pound could climb to $1.50 in 2021 should a last-minute Brexit agreement emerge.

“We still can’t get our heads around the fact that a trade deal will collapse because of fisheries … overall I would say that risk positivity driven by vaccines and stimulus, plus the fact that fiscal stimulus needs to be funded by a lot of borrowing in the U.S., still paints a picture of dollar weakness for 2021,” Catril added.

Dollar Up, Pound Slides Over New U.K. Lockdowns

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