US Dollar Back Above 93 Levels as Vaccine Optimism Fades

US dollar index is back above 93 levels as investor’s optimism over the coronavirus vaccine faded in the past two sessions. The rally in the USD index is also supported by heavy selling in currencies like the Japanese yen and Swiss franc.

The selloff in currencies is blamed on the massive increase in daily coronavirus infections across Europe and the United States. The USD index, which tracks the US dollar against the basket of six major currencies, jumped above 93 levels after hitting ten weeks low on Monday.

US dollar rally is supported by fading vaccine optimism

The US dollar fell sharply at the beginning of the week after Pfizer announced that its coronavirus vaccine has more than 90% effectiveness in treating patients. Equities rallied on the news while the US dollar fell. The selloff in the euro and other currencies also supported the US dollar rally.

Euro fell to $1.17 level against the US dollar. Euro fell after European Central Bank (ECB) President Christine Lagarde’s said the economy would get a big hit in the fourth quarter due to the pandemic.

He said, “Pandemic Emergency Purchase Program and Targeted Longer-Term Refinancing Operations (TLTROs) have proven to be effective tools. They are, therefore, likely to remain the main tools for adjusting our monetary policy.”

Market analysts still see a downside for USD

The market analysts believe the US dollar has little upside potential amid the decline in the U.S. bond yields along with prospects that the Federal Reserve’s policy of keeping lower interest rates would negatively impact the US dollar value when compared to other currencies.

“I think we had a speculative market that was increasingly comfortable being short on U.S. dollars. Then we had the vaccine news and a big spike in U.S. bond yields, which I think just acted like a little bit of a check on unbridled U.S. dollar bearishness,”

National Australia Bank (OTC:NABZY) head of foreign exchange strategy Ray Attril said.