“Markets were very risk-averse out of the gate this week, and it’s continued today,” Richard Franulovich, senior currency strategist at Westpac Banking Corp, told Reuters.
In contrast, the franc, euro and yen have been appreciating against the greenback as a safe-haven trade. The hard currencies are typically used to fund trades of more risky assets due to their low interest rates. However, when investors reverse those risky bets, they buy back the hard currencies, which we are seeing now. Currently, investors are unwinding bets on risky emerging-market assets and buying back hard currencies to fund those positions.
Looking ahead, currency traders are waiting on comments from the Federal Reserve Chair Janet Yellen, who will speak on monetary policy and the Fed’s view on the U.S. economy to the House Financial Services Committee on Wednesday. A USD rebound could occur if Yellen firmly signals a March rate hike is still on.
Max Chen contributed to this article.