FX reflation trades wilt on virus outbreak concerns


FILE PHOTO: A U.S. hundred dollar bill and Japanese 10,000 yen notes are seen in this photo illustration in Tokyo, February 28, 2013. REUTERS/Shohei Miyano/File Photo

July 20, 2021

By Saikat Chatterjee

LONDON (Reuters) – Popular reflation trades in the $6.6 trillion a day currency markets wilted on Tuesday on fears the spreading Delta variant of the coronavirus would stymie the global recovery.

The Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, extending its losses to 4% in the last 10 trading sessions, according to Refinitiv data.

“The price action continues to send an ominous warning signal over the global growth outlook and indicates that market participants are becoming fearful over a more notable slowdown ahead,” MUFG strategists said in a daily note.

The risk-off sentiment in the currency markets reverberated far and wide with the U.S. dollar, the yen and the franc benefiting against rivals. So far this month, these three majors are the best performing currencies in global markets.

Against a basket of its rivals, the greenback strengthened widely on Tuesday and was within striking distance of an early-April high of 93.041 hit in the previous session.

The fast-spreading Delta variant of the coronavirus is now the dominant strain worldwide, and has been accompanied by a surge in infections in the United States, particularly in areas where vaccinations have lagged.

The euro EUR=EBS weakened 0.1% to $1.17845, after dipping overnight to the lowest since early April at $1.1764 before a European Central Bank policy decision on Thursday.

The British pound was also among the top losers in early London trading with the currency declining 0.2% at $1.36470 as Boris Johnson’s “freedom day” – ending over a year of COVID-19 lockdown restrictions in England – was marred by surging infections.

In cryptocurrencies, bitcoin sank as low as $29,500, a level not seen since June 22, before trading 3.4% lower at $29,748.30. Rival ether dropped nearly 5% to $1,730.33 before trimming some losses.

(Reporting by Saikat Chatterjee; Editing by Dhara Ranasinghe, Robert Birsel)

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