The US dollar stabilized on Tuesday, recovering from a short period of profit-taking in the previous session, but its growth was held back as an improvement in risk sentiment contributed to the growth of riskier currencies such as the Australian dollar and the British pound.
During the day, the dollar index remained practically unchanged. The index, which increased roughly 7% on the year, plunged by 0.1% on Monday as traders sold the US dollar to lock in profits in the final days of the year.
Risk appetite was undermined after U.S. Senator Joe Manchin, a conservative Democrat who plays a key role in President Joe Biden's hopes for the passage of a $1.75 trillion social spending bill, said he would not support the package. This situation prompted a sell-off in global markets.
The rising cases of Omicron coronavirus have also pushed investors to seek safe havens such as the Japanese yen and Swiss franc.
On Tuesday, stocks rebounded and bond yields rose as investors ignored recent setbacks.
At the same time, the risk-sensitive Australian dollar surged by 0.37%, breaking a two-day weakening streak.
The recovery in global risk appetite has pushed the pound against the US dollar and the euro, even though British Prime Minister Boris Johnson warned that additional isolation measures may be required to fight the spread of the virus.
Despite the US dollar's weak activity this week, the dollar index is still close to a 16-month high of 96.938, which it reached in late November. Investors remain optimistic about the US dollar, as the latest positioning data is near the highest levels in more than two years.
The Fed's hawkish statement last week set the stage for a three-fold quarter percentage point rate hike in 2022, which is expected to keep the US dollar strong.
The governor of the Bank of Canada said on Wednesday that the recession in the Canadian economy caused by the coronavirus pandemic has significantly decreased, which is a key sign that the central bank is going to start raising rates in the near future.
The Canadian dollar was up about 0.1% on Tuesday:
As for other trades, the Turkish lira rose by about 4% against the US dollar, continuing its historic recovery from record lows after President Tayyip Erdogan unveiled a plan that he said will guarantee the stability of deposits in local currency, regardless of market fluctuations.
Bitcoin rose by 4%, namely to $48,700 after declining over the past few weeks: