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FX reflation trades wilt on Delta outbreak concerns

20 Jul 2021 15:00:09 | Update: 20 Jul 2021 15:00:18
FX reflation trades wilt on Delta outbreak concerns
A US hundred dollar bill and Japanese 10,000 yen notes are seen in this photo illustration in Tokyo, February 28, 2013. — Reuters Photo

Popular reflation trades in the $6.6 trillion a day currency markets wilted on Tuesday on fears the spreading Delta variant of the coronavirus would stymie the global recovery.

The Aussie dollar/Swiss franc cross, a favourite proxy in currency markets for economic recovery bets, fell to its lowest level since December 2020 at 0.6714 francs, extending its losses to 4 per cent in the last 10 trading sessions, according to Refinitiv data.

"The price action continues to send an ominous warning signal over the global growth outlook and indicates that market participants are becoming fearful over a more notable slowdown ahead," MUFG strategists said on a daily note.

The risk-off sentiment in the currency markets reverberated far and wide with the US dollar, the yen and the franc benefiting against rivals. So far this month, these three majors are the best performing currencies in global markets.

Against a basket of its rivals, the greenback strengthened widely on Tuesday and was within striking distance of an early-April high of 93.041 hit in the previous session.

The fast-spreading Delta variant of the coronavirus is now the dominant strain worldwide, and has been accompanied by a surge in infections in the United States, particularly in areas where vaccinations have lagged.

The euro weakened 0.1 per cent to $1.17845, after dipping overnight to the lowest since early April at $1.1764 before a European Central Bank policy decision on Thursday.

The British pound was also among the top losers in early London trading with the currency declining 0.2 per cent at $1.36470 as Boris Johnson's "freedom day" - ending over a year of Covid-19 lockdown restrictions in England - was marred by surging infections.

In cryptocurrencies, bitcoin sank as low as $29,500, a level not seen since June 22, before trading 3.4 per cent lower at $29,748.30. Rival ether dropped nearly 5 per cent to $1,730.33 before trimming some losses.