Dollar rises on safe-haven bid as Austria reimposes lockdown

The dollar rose on Friday as investors sought safe havens after Austria said it would be the first country in western Europe to reimpose a full lockdown amid surging COVID-19 infections, and Germany said it could follow suit.

The dollar index, which tracks the dollar against a basket of six major currencies, was up 0.357% at 95.903, close to its 16-month high of 96.266 hit on Wednesday. The dollar was on track for a weekly gain of around 1%.

The euro, meanwhile, which has been on the back foot all week, hit a 16-month low amid the COVID surge in Europe and as expectations have grown that interest rates will be hiked faster elsewhere, particularly in the United States.

Commodity-linked currencies, such as the Australian, New Zealand, and Canadian dollars, often seen as risky, all declined.

"The greenback is capitalizing on risk-off flows," said Fiona Cincotta, senior financial markets analyst at City Index.

On top of a lockdown, Austria also said it will require all its citizens to be vaccinated against COVID-19 from Feb. 1, while Germany's health minister cautioned lockdown restrictions could return there.

"One thing is certain, if the whole of Europe had to go under lockdown once more, and depending on how long that would last, we would need to rethink our growth scenarios," said Stephane Ekolo, global equity strategist at brokerage Tradition.

The euro has declined more than 1% this week versus the dollar and was down 0.61% on the day at $1.13055, having earlier touched $1.1248, its weakest since July 2020.

European Central Bank President Christine Lagarde doubled down on her cautious position on Friday, saying the ECB should not tighten policy as it could undermine recovery.

Expectations are growing that the dollar can strengthen further into next year as U.S. economic data, including retail sales numbers earlier this week, has largely been surprising to the upside, while inflation has been running hotter-than-expected.

"We think a combination of Fed tapering and slowing global growth should favour the U.S. dollar in 2022," analysts at UBS said in an outlook report.

The Aussie was down 0.32% at $0.72525 and the Kiwi was 0.47% lower at $0.7013.

The Canadian dollar slid 0.23% to 1.26295.

The Japanese yen, also considered a safe-haven currency, strengthened following Austria's lockdown announcement, last up 0.35% versus the dollar at 113.85 yen.

Sterling shed some of its recent gains and was down 0.37% at around $1.3449.

In cryptocurrencies, bitcoin was below $60,000 and set for its worst week in six months - last trading around $58,000.

($1 = 114.4500 yen)

 

(Reporting by John McCrank in New York and Iain Withers in London; Editing by Emelia Sithole-Matarise and Mark Heinrich)