© Reuters. US dollar bills are seen in front of the stock chart shown in this illustration taken
By Kevin Buckland
TOKYO (Reuters) – The dollar hit a new four-month high for the euro on Thursday as the US pandemic reaction continued to surpass that of Europe, which has been hampered by extended lockdowns and delayed rollout of the vaccine.
The safe-haven greenback remained largely stronger after a two-day rally amid concerns ranging from Europe’s third COVID-19 wave and potential US tax hikes to the persistent inflation joke.
Even Germany’s return of a call for a strict lock-in function during the Easter period did not do much to boost confidence in the region’s economic prospects, rather than creating dissatisfaction with Chancellor Angela Merkel’s handling of the pandemic.
“The weak point in Europe remains around the vaccine’s rollout in the midst of the rise in new virus cases and the tightening of restrictions … which probably means the sharp acceleration in Q2 may have to be pushed back by a quarter,” Tapas Strickland, director economy and markets at the National Australian Bank, wrote in a client note.
“The story of the United States surpassing Europe in the coming quarter is still there.”
The euro traded near the four-month low of $ 1.1809 touched earlier in the Asian session, while a measure of the dollar against six major rivals hovered just below a four-month high of 92617 reached overnight.
The dollar rose 0.1% to 108,835 yen, another safe haven currency as the pair continued to consolidate below 109.
The Australian dollar, considered a floating proxy for risk appetite, jumped 0.2% after a previous drop to $ 0.7579, the lowest level since February. 2.
U.S. Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell expressed confidence in the U.S. recovery during another day of testimony before Congress Wednesday.
Yellen told lawmakers she was open to banks buying back shares and paying dividends, an updated view showing her confidence in the economy. Powell also said he believes 2021 will most likely be a “very, very strong year.”
A day earlier, however, the Secretary of State had put investors on alert after agreeing to tax increases to pay for President Joe Biden’s plans to upgrade infrastructure and other investments.
Inflation may also raise its head as supply chain disruptions exert cost pressures on manufacturers, with US manufacturing activity increasing in early March.
Meanwhile in Europe, an unexpected expansion of business activity did little to brighten the mood with renewed COVID-19 lock-in in many of the bloc’s member states, meaning the gains may not last in April.
Concerns have been heightened because the third wave of infections is largely driven by the British virus strain, according to Commonwealth Bank of Australia (OTC 🙂 strategist Kim Mundy.
“The risk is that the more contagious and deadly strain of the virus will provoke a stronger response from European governments, which see Europe remain locked in for longer,” she wrote in a note.
“A significant delay in Europe’s reopening efforts will only widen the gap between the economic prospects in Europe and the United States,” putting further pressure on the euro, she said.
In cryptocurrencies, bitcoin continued to swing wide, falling below $ 52,000 again in early Asian trading, before recovering to around $ 52,667. That is after briefly topping $ 57,000 overnight.
Less than two weeks earlier, the token rose to a record high of $ 61,781.83.