LONDON (Reuters) – The dollar edged down slightly on Tuesday and the Japanese yen recovered some of the previous session’s losses after news of progress towards a COVID-19 vaccine boosted risk appetite in global markets.
U.S. drugmaker Pfizer Inc (N:) and German partner BioNTech SE (O:) said on Monday a large-scale clinical trial showed their vaccine was more than 90% effective in preventing COVID-19.
The dollar — which is considered to be a safe haven and so typically falls on positive news — rose after the announcement, as investors quit their long positions in safe currencies such as the Japanese yen and Swiss franc.
The safe-haven Japanese yen tumbled to a 20-day low versus the dollar.
But these moves eased on Tuesday, with the yen and franc clawing back some of their losses
“Following a euphoric market reaction such as that the question that now arises is whether it was justified or possibly exaggerated,” wrote Commerzbank (DE:) FX and EM analyst You-Na Park-Heger in a note to clients.
“Even if the news of a vaccine could be a game changer, we urge caution, as the massive euphoria could be followed by some disenchantment,” she said.
But Lee Hardman, currency analyst at MUFG, said that despite the uncertainties “it is still an important step forward to exit the COVID crisis and provides a reminder not to bet against human ingenuity”.
“It supports our baseline assumption behind our FX Outlook that effective vaccines will be implemented next year,” he added. “Further positive progress on vaccines will allow currencies which have been hit hard by the COVID crisis to continue to rebound.”
At 0813 GMT, the was at 92.730, broadly flat on the day and up around 0.3% since Pfizer’s announcement on Monday ().
The dollar has lost around 1.4% this month as Democrat Joe Biden’s victory in the U.S. presidential election provided a major boost to market sentiment.
Euro-dollar was up around 0.1% at $1.18315, having fallen as the dollar strengthened in the previous session ().
The Australian dollar – seen as a liquid proxy for risk appetite – was up just 0.1% versus the U.S. dollar as the boost from the vaccine news proved short-lived.
The New Zealand dollar was up 0.2%, in its seventh consecutive session of gains
The Norwegian crown, which also benefited from the vaccine news, extended its gains versus the euro on Tuesday, up 0.3% on the day at 10.652 ().
China’s , which has been gradually strengthening since May, hit new 2.5-year highs versus the U.S. dollar on Monday but eased some gains on Tuesday, up 0.3% on the day at 6.5970 at 0827 GMT
U.S. President Donald Trump plans to push ahead with legal challenges to the presidential election results and will hold a series of campaign-style rallies to build support.
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