The Dollar sinks and the Sterling jumps as investors make a run to riskier assets.

The U.S. dollar sank on Monday, bolstered by a risk-on sentiment and some hope that recent warmer temperatures and falling energy prices will prevent gas rationing on the continent this winter.

In contrast, the STOXX 600 index rose 0.5%. Traders are betting China will ease its COVID restrictions, even though officials have said they do not plan an imminent reopening.

Against a basket of currencies, the safe-haven US dollar index fell 0.54% to 110.49 at the end of last week. The change occurred after China announced that they would be keeping their “dynamic-clearing” approach to COVID-19 cases in order to finally encourage trade and commerce.

However, the following Monday China devalued the offshore yuan by 0.8% against the dollar at 7.2347 when it announced it would persevere with its “dynamic-zero” COVID-19 strategy for any emerging cases for the foreseeable future, giving little indication that it would ease its outlier zero-COVID policy nearly three years into the pandemic.

The Australian and New Zealand dollars fell sharply during Asian trade, but then recovered as European markets opened. However, the other risk-sensitive currency, the sterling, reversed earlier losses and traded up 0.66% to $1.1446. The euro also jumped to its highest since October 27th and was last up 0.27% to $0.9986.

“We can question whether the China story has any veracity, but for now the market is quite happy to give it credence,” said Jeremy Stretch, Head of G10 FX Strategy at CIBC. “Despite big denials.”

The economic impact of China’s zero-COVID policy was again highlighted in Chinese trade figures released on Monday, which showed exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020.

Investors were also assessing Friday’s U.S. jobs report which showed that firms added a more-than-expected 261,000 jobs in October and hourly wages continued to rise, evidence of a still-tight labor market.

But hints of some easing of market conditions, with the unemployment rate rising to 3.7%, fuelled hopes that the much sought-after Fed pivot could be on the horizon, capping the dollar’s gains.