Currency markets still showed signs of caution on Wednesday, with the safe haven dollar touching its highest since early April and riskier currencies losing out due to a combination of fears over inflation and surging COVID19 infections.

The Delta variant of the coronavirus replaced inflation as investors primary source of concern this week, prompting global stocks to drop sharply on Monday. European equity markets picked up on Wednesday and Wall Street futures pointed to a stronger open.

By 1120 GMT, the dollar index was up 0.1 at 93.055, having touched 93.194 in early trading, the highest since April 1.

Joel Kruger, currency strategist at LMAX Group, said the riskaverse mood and inflation fears were joining forces to push the dollar higher.

Its becoming increasingly difficult for the Fed to be able to reconcile its stance that inflation is transitory. At some point the definition of transitory is called into question, he said.

Kruger expects more dollar strength in the third quarter, with the dollar index heading towards 96 to 97.

The Australian dollar, seen as a liquid proxy for risk appetite, fell to its lowest since November in early trading before recovering somewhat. At 1124 GMT, it was down 0.2 on the day at 0.73135, while the New Zealand dollar was up 0.1 at 0.6924.

Australias two largest states reported sharp increases in new COVID19 cases on Wednesday, a blow to hopes that lockdown restrictions would be lifted as more than half the countrys population…