USD stabilizes as risk appetite declines

The dollar experienced a slight decline on Wednesday, despite remaining near its highest level in two weeks. This was supported by factors such as rising US Treasury yields and caution in risk appetite, impacting Wall Street.

Trading activity was relatively thin in Asia due to the holiday in Japan. The dollar retraced some of its morning gains during the trading day in the region.

The New Zealand dollar, often considered an indicator of risk appetite, rose by 0.29 percent to $0.62695, rebounding from a two-week low of $0.62485 earlier on Wednesday.

Against a basket of currencies, the US dollar settled near its two-week high at 102.25, reached on Tuesday, and was at 102.13.

On Tuesday, the dollar index recorded a significant jump of 0.86 percent, marking its best daily performance since March 2023.

The risk appetite seen at the end of the previous year, driven by expectations of monetary tightening at the Federal Reserve meeting in December, which led to increased bets on a potential cut in US interest rates in 2024, did not persist into the new year. Risk aversion set in, causing the Standard & Poor’s and Nasdaq Composite indices to decline at the beginning of 2024, with major technology stocks experiencing a downturn.

Simultaneously, both the euro and the British pound suffered notable losses, marking their most substantial daily declines in months on Tuesday. The euro, after losing 0.95 percent on Tuesday, rose by 0.14 percent to $1.0955. Sterling, after a 0.87 percent decline in the previous session, rose by 0.11 percent to $1.2633.

The yen remained under pressure, falling approximately 0.1 percent to 142.05 against the dollar after experiencing a 0.8 percent drop in the previous session.