Dollar flat, currency markets hold moves after vaccine news

NEW YORK (Reuters) – The dollar was steady on Tuesday and the yen stayed low, as investors remained optimistic about progress towards a COVID-19 vaccine and the currency markets digested the big moves of Monday.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

U.S. drugmaker Pfizer Inc PFE.N and German partner BioNTech SE BNTX.O said on Monday a large-scale clinical trial showed their vaccine was more than 90% effective in preventing COVID-19 – news which lifted global markets with a wave of risk appetite.

The dollar’s rise on Monday of 0.5%, analysts said, was caused by investors quitting long positions in other major safe-haven currencies such as the Japanese yen and the Swiss franc.

The dollar was flat against a basket of major currencies, near its previous session’s highs, as market participants declined to push it further in light of uncertainty about how or when a vaccine could be rolled out.

“Today is a little bit of a cool off from what we’ve seen in this past couple of days,” said Minh Trang, senior FX trader at Silicon Valley Bank. “I don’t mind a little bit of a breather. November has been very, very interesting.”

Neil Jones, head of FX sales for financial institutions at Mizuho, said he expected the risk-on moves to hold.

“I don’t think it’s over and don’t think the foreign exchange market will become completely skeptical,” he said.

“We need more clarity in terms of the distribution, quantities, timeline, and to whom,” Jones said. “On balance, that optimism will remain for now.”

The dollar had lost around 1.4% this month until Democrat Joe Biden’s victory in the U.S. presidential election became apparent over the weekend.

The Japanese yen, which had its biggest one-day fall since March after the vaccine announcement, was little changed Tuesday morning in New York at 105.34 JPY=D3 yen to the dollar. The yen had initially clawed back some of its from the day before.

The Swiss franc CHF=EBS gained marginally, with the dollar rising 0.1% to 0.915 francs after Monday’s 1.5% gain.

“Following a euphoric market reaction such as that the question that now arises is whether it was justified or possibly exaggerated,” wrote Commerzbank FX and EM analyst You-Na Park-Heger in a note to clients.

Euro-dollar was broadly flat at $1.1813. In the previous session, it rose to as high as $1.192, but went no further, which Mizuho’s Jones said could be due to the European Central Bank having signalled its awareness of the downsides of rapid euro strength EUR=EBS.

“The market is a little bit concerned about repeat verbal intervention in the euro around the 1.20 area so I think sellers maybe dropped their offers down lower than that 1.20, thinking that that might be the limit of the upside,” Jones said.

The Australian dollar – seen as a liquid proxy for risk appetite – was off nearly 0.3% versus the dollar, giving back its jump in the immediate aftermath of the vaccine news. AUD=D3.

The New Zealand dollar was off 0.1% and poised to end its streak of seven consecutive session of gains NZD=D3.

China’s offshore yuan, which has been gradually strengthening since May, was flat on Tuesday after hitting 2.5-year highs versus the U.S. dollar on Monday. CNH=EBS.

President Donald Trump plans to push ahead with legal challenges to the election results and will hold a series of campaign-style rallies to build support.

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