USD Rises as Risk Rally Takes a Pause
Strong Dollar Amidst Cautious Market Sentiment
The dollar saw a broad rise on Wednesday, reaching a two-week high against major peers. This was driven by factors such as elevated U.S. Treasury yields and a cautious turn in risk sentiment affecting Wall Street.
Thin Trading in Asia with New Zealand and Australia Dollars Sliding
Trading in Asia was thin due to Japan’s holiday, and most currencies traded sideways. The New Zealand dollar slid to a two-week low of $0.62485, while the Australian dollar also hit a two-week trough of $0.6756.
The Dollar’s Resilience and Reversal in Risk Sentiment
Despite a 2% fall in the previous month, the U.S. currency remained firm. A surge in risk appetite at the end of last year had led to a weaker dollar, but a reversal in risk sentiment due to higher U.S. yields and weaker U.S. stocks resulted in the dollar’s strength.
Impact on Euro, Sterling, and Yen
The stronger dollar also weighed on the euro and sterling, which experienced their worst daily performances in months. The euro last stood at $1.0949 after a 0.95% daily decline, while sterling wobbled near a three-week low at $1.2630. The yen, too, was little changed at 141.98 per dollar.
Geopolitical Tensions and Market Sentiment
The risk-off mood was also driven by concerns over escalating geopolitical tensions, particularly following Israel’s drone strike in Lebanon’s capital Beirut. This indicates that geopolitical factors are influencing market sentiment at the start of the year.
