US dollar bounced back sharply at the beginning of this week amid a sharp drop in equities and risker currencies. The significant growth in coronavirus infections along with the threat of new lockdown and economic restrictions pushed the US dollar higher against the basket of six major currencies.
The US dollar index, which gauges the performance greenback against the six major currencies, jumped to the highest level in the last month.
European currency and stocks fell back against the US dollar as the World Health Organization warned that the rapid growth in virus infections could create a worse situation in the coming months.
A similar warning is issued by the top 50 UK scientists, who believe virus infections could reach 50,000 per day next month.
“What we’re seeing here this morning for the dollar is largely a risk-off safe-haven bid,” said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto, adding that the trigger was in the European morning on rising fears of a new U.K. nationwide lockdown.
Gold price, on the other hand, dropped more than 3% on Monday due to the strengthening US dollar. Gold is currently hovering below $1950 an ounce. Analysts say gold failed to work as a safe investment when sentiments turn down. Meanwhile, the US dollar soars in a panic situation.
“Gold is once again not providing shelter in these hazardous times,” said Craig Erlam, senior market analyst at Oanda, in a market update. “The dollar is instead making strides higher which is further pressuring commodity markets and taking gold with it,” Craig Erlam added.
The common currency slid to $1.17 level on Monday as virus-related worries have significantly impacted investor’s sentiments over European economic recovery. Euro has recently hit two years high of $1.20 against the US dollar. The British Pound also struggled amid the risk of fresh lockdowns.