FX Update: Dollar firmness has been ensuring amid risk-wary conditions

FX Update: Dollar firmness has been ensuring amid risk-wary conditions across asset markets, despite U.S. Treasury yields having dropped sharply over the last day, eroding the dollar's yield differential advantage against peers. This indicates that the market is utilizing the dollar as a safe haven vehicle once again, with the DXY dollar index vaulting to a six-day high at 90.59. The one-month peak, seen on January 18th, is at 90.95. EUR-USD dropped to a five-day low at 1.2108, and Cable to a one-week low at 1.3610. USD-JPY lifted only moderately, out of four-day lows, with the yen itself gaining against most other currencies, in accordance with the often-seen correlative pattern during risk-off positioning. The dollar bloc and other cyclical currencies have taken a turn lower, underperforming most other currencies. The reflation trade remains a valid investing thesis for the year ahead, hinged on successful Covid vaccination programs, but has weakened. The resurgence in the virus in the northern hemisphere, and the consequences of societal restrictions, has been worse than many had been anticipating. (It can still be argued, to give the view of sceptical scientists an airing, that the unprecedented level of testing for a respiratory virus and known accuracy of said testing may in itself be exacerbating panic, especially with all-cause mortalities data painting a different picture by largely fitting seasonal norms in areas where the coronavirus hit hard the first time around, including in regions where there have been relatively few restrictions, such as South Dakota in the U.S., Sweden and Pakistan). There are also concerns about new strains and a balky global rollout of vaccines. Added to the worry list is the delay and trimming in the $1.9 tln fiscal deal in the U.S. Senate Majority Leader Schumer said that an aid package was unlikely before mid-March.