Dollar drops, Aussie, Sterling gain as risk appetite increases

U.S. dollar banknotes.
Liu Jie | Xinhua via Getty

The greenback dropped and riskier currencies, including the Australian dollar, outperformed on Tuesday as risk appetite improved on hopes that lockdowns may be slowing the spread of the coronavirus in some countries. U.S. stocks gained as investors moved back into riskier assets.

Sterling also rose a day after British Prime Minister Boris Johnson was moved into intensive care due to worsening coronavirus symptoms.

Analysts said the currency is benefiting from the increased risk appetite that is weighing on the U.S. dollar. Johnson's condition, while a concern, is also unlikely to mean a change in the government's policy direction in fighting the virus.

"Despite the sad news about the UK PM Johnson, fatalities in the UK remain relatively low and slowed for the second day, although the apex is still thought to be about 10 days away," Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a report. "High-frequency data on coronavirus infections and death rates continue to stabilize," Thin said.

In Spain and Italy, which account for over 40% of the world's fatalities, the death rate has been declining for several days, and public discussion has turned to how and when to ease weeks of drastic curbs on personal and economic activity.

In the United States, the governors of New York, New Jersey and Louisiana pointed to tentative signs on Monday that the coronavirus outbreak may be starting to plateau in their states but warned against complacency as the death toll nationwide approached 11,000.

The dollar was last down 0.93% versus a basket of currencies at 99.82.

The Australian dollar jumped 1.91% to $0.6202. Sterling gained 1.08% to $1.2361. The euro rose 1.13% to $1.0913.

The dollar was down 0.18% against the yen as Japanese Prime Minister Shinzo Abe declared a state of emergency for parts of the country on Tuesday to counter the spread of coronavirus.

A recovery in oil prices on hopes that the world's biggest producers will agree to cut output also boosted risk sentiment.

Action by central banks to ease a scramble for dollars has helped bring some calm to markets.

"We've got a nice decline in volatility across forex and equity markets," said Kenneth Broux, FX strategist at Societe Generale. "We know central banks have done a very good job in alleviating the strain in dollar markets and that's feeding through."