The dollar edged higher in early European trade Wednesday, holding on to recent gains following doubts about how quickly a Covid-19 vaccine will come to the market, prompting a more risk averse trading environment.
At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up marginally at 93.567, retaining recent gains after hitting a three-week low of 92.997 on Friday.
Risk appetite has weakened after Eli Lilly (NYSE:LLY) placed its coronavirus antibody test on hold due to potential safety concerns, less than a day after Johnson & Johnson (NYSE:JNJ) paused its Covid-19 vaccine trial because of a participant’s unexplained illness.
The coronavirus continues to tighten its grip on the Western world, with Europe, in particular, hard hit by a second wave. Many countries are now widening restrictions to try to regain a grip on the pandemic.
That said, the recent losses in equity markets have been pretty small and currency moves are likely to be subdued as the U.S. presidential election looms on Nov. 3.
“Overall, markets may still be inclined to look at the glass half full as they retain some hope around U.S. fiscal stimulus and Joe Biden’s consolidated lead in the polls which lowers the perceived risk of a contested election,” said analysts at ING, in a research note.
Elsewhere, GBP/USD traded 0.2% lower at 1.2906, extending declines after U.K. Prime Minister Boris Johnson repeated his threat to abandon negotiations with the EU on relations between the two after the end of the Brexit transition phase.
Johnson’s self-imposed Oct. 15 deadline drawing near and there are few signs of an agreement being reached.
The European Union would prefer to have a Brexit deal, but it is ready in case no agreement can be reached, the Commissioner for the EU’s single market, Thierry Breton, said late Tuesday.
EU leaders are holding a summit in Brussels on Thursday and Friday to assess progress.
Later Wednesday, the International Monetary Fund will publish its latest Fiscal Monitor, which will track the likely path of budget deficits next year as they come to terms with the pandemic’s after-effects. The IMF on Tuesday had forecast a 4.3% contraction for the U.S. economy this year, and an 8.3% drop in Eurozone GDP.