The dollar saw selling in early European trade Tuesday, as clarity over the U.S. political transition emerged and the tapping of Janet Yellen to be the next Treasury Secretary strengthened expectations of an expansive fiscal policy under President-elect Joe Biden.
At 3:15 AM ET (0815 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 92.252, after seeing its lowest level since Sep. 1 overnight.
EUR/USD climbed 0.3% to 1.1873, helped by an upward revision to German third-quarter GDP growth to 8.5% from an initially reported 8.2%, while USD/JPY fell 0.2% to 104.30. The risk sensitive AUD/USD rose 0.9% to 0.7353.
A lot of the uncertainty surrounding the transition of power in the U.S. was lifted Monday when Emily Murphy, the General Services Administration head, effectively acknowledged Biden as the winner of the presidential election, saying he could have briefings and funding to ease his transition into the role.
President Donald Trump tweeted his approval of the move, even though he vowed to continue fighting to try and overturn the vote in several states.
Murphy, a Trump appointee, had withheld her decision for weeks after the Nov. 3 election, resulting in the markets being unsure whether there would be a prolonged political vacuum. The removal of these fears has led to traders seeking out more risk, to the detriment of the safe haven dollar.
Helping the positive risk sentiment was the appointment of former U.S. Fed Chair Janet Yellen to be Treasury Secretary in the upcoming Biden administration.
Yellen has recently called for more federal spending from Congress to tackle the economic devastation caused by the virus, and is widely seen as encouraging the low interest rate policy the Federal Reserve has adopted to battle the pandemic.
Adding to the reasons to veer towards riskier currencies has been the recent promising news on vaccines, and this continued on Monday as data pointed to AstraZeneca’s candidate, produced in conjunction with the University of Oxford, being up to 90% effective in preventing the Covid-19 virus. This adds to earlier positive news from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA).
Elsewhere, GBP/USD rose 0.4% to 1.3371, close to a near 12-week high as traders expect the U.K. and the European Union to finally seal a post-Brexit trade deal.
“What remains a solid conviction in our view,” said analysts at ING, in a research note, “is that GBP would face an asymmetrically negative reaction if negotiations ultimately collapse.”