Dollar Index holds near 4-½ month lows

• Dollar index remains under pressure near multi-month lows.
• Risk-on keeps the safe-haven US dollar under pressure. 

Sentiment around the greenback remains bearish in Asia with the dollar index, which measures the value of the American currency against majors, languishing near the 4-½ month low of 95.05 reached on Tuesday. 

Better risk mood weighs

The soft tone in the US dollar, a global reserve, and a safe haven could be attributed to a better mood in the financial markets. 

Global equities rallied sharply on Tuesday, as investors cheered the European Union’s (EU) landmark fiscal stimulus deal and progress on the coronavirus vaccines. Additional bullish pressure stemmed from expectations for another round of fiscal stimulus in the US. 

With the futures tied to the S&P 500 currently up 0.43%, the risk-on action is likely to continue on Wednesday. 

As such, a big bullish turnaround in the US dollar looks unlikely. That said, we may see a technical bounce, given the relative strength index is reporting oversold conditions on the hourly and 4-hour charts. 

Investors should also note that the US-China tussle is far from over and any escalation could strengthen the bid tone around the US dollar. The rising number of coronavirus cases in the US and other parts of the world could also play stall the decline in the US dollar. 

Technical levels