Dollar Rises Amid Small Stock Traders Madness

 Small retail traders conspire on social media to buy shares in companies that are often bankrupt. Earlier these shares were sold by hedge funds after analyzing the company's fundamentals and concluding that the shares should decline. But the insane growth of the shares of these companies hundreds of times after the agreement to buy retail investors on social networks is forcing hedge funds to fix losses and cover them by selling other assets, including those purchased earlier for US dollars. As a result, the dollar rises again


Dollar to Yen chart at 15 minute intervals
Dollar to Yen chart at 15 minute intervals


The dollar rallied and risk-sensitive currencies fell on Friday after an attack on short positions in US hedge funds eroded investor confidence and boosted demand for safe-haven currencies.

So, shares in video game seller GameStop Corp and headphone maker Koss Corp doubled in premarket Friday as hobbyist traders returned a day after online brokerage apps, including Robinhood lifted restrictions on stock purchases.

Changes in foreign exchange markets were marginal, with the dollar still within recent trading ranges. However, the dollar buying underscores that fears of sharp fluctuations in stock prices were felt across all markets.

The dollar has benefited from safe asset purchases since the start of the week, when investors worried that President Joe Biden's budget spending package would not be as large as he previously announced: $ 1.9 trillion.

The introduction of the COVID-19 vaccine around the world is also facing challenges, adding to investor concerns. The production delays have resulted in a squabble between the European Union and drug manufacturers over how best to allocate the limited supply available.

"We could see how the dollar will maintain some positive momentum ahead of the weekend amid demand for defensive assets: in this sense, it is worth closely monitoring further developments in the story of Robinhood," said ING, referring to brokerage activities popular with retail clients. that are attacked by hedge funds.

 

In early London trading, the dollar index, which measures the dollar against a basket of currencies, rose 0.2% to 90.739. It has grown by half a percent in a week.

The euro fell 0.1% to $ 1.2107 after the release of German fourth-quarter GDP data at 09:00 GMT.

Germany's economy grew just 0.1% in the fourth quarter as the second wave of coronavirus nearly halted Europe's the largest economy after a sharp recovery following an initial outbreak in the third quarter, official data showed on Friday.

The resumption of quarantine late last year hit private consumption, while merchandise exports and construction boosted the economy, according to the Federal Statistical Office. A Reuters poll predicted a 0.0% growth in the fourth quarter.

The dollar rose 0.6% against the Japanese yen to 104.64.

The Swiss franc, another currency that investors often buy when they are nervous, moved slightly against the euro and traded at 1.0771.

Risk-sensitive currencies like The Australian dollar fell. Most emerging market currencies also fell.

The Chinese yuan strengthened to 6.4695 yuan per dollar in offshore markets.

The People's Bank of China (PBOC) poured 100 billion yuan into the financial system on Friday after a week of liquidity squeeze, sparking fears that the central bank is actually tightening monetary policy.

Despite the dollar's gains this week, most analysts stick to their forecasts that it will weaken in 2021 as the new US government spends massive fiscal spending while the Federal Reserve maintains its ultra-soft monetary policy.

“The overall trend really reflects the concerns around the US dollar,” said Michael McCarthy, chief strategist at CMC Markets in Sydney.

"Broad expectations for a major new bond issue and support from the Fed mean that we expect the US dollar to weaken further in the medium term."

Tommy Wilkes and Kevin Buckland © 2021 Thomson Reuters

 


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