Risk sentiment revived in currency markets on Wednesday, as progress towards a COVID-19 vaccine helped equities rebound and commodity currencies strengthen, while the dollar fell to a one-month low.

The U.S. company Moderna (MRNA.O) has produced an experimental COVID-19 vaccine that provoked immune responses in all 45 volunteers, sparking a risk-on mood.

But there was still some cause for caution, with worsening U.S.-China tensions and fears about the economic impact of a second wave of coronavirus in the United States.

Florida, which has become an epicentre of the new outbreak, reported 133 new COVID-19 fatalities on Tuesday, raising its death toll to more than 4,500.

The dollar index fell below 96 for the first time since June, dropping to a one-month low of 95.866 around 0830 GMT =USD. It then stabilised at 95.907 at 1045 GMT.

The riskier New Zealand and Australian dollars were both up around 0.5% versus the U.S. dollar since New York's close, with the Aussie at 0.701 and the Kiwi at 0.6568 AUD=D3 NZD=D3.

“The main driver here is from the U.S. dollar side,” said Commerzbank’s head of FX and Commodity research, Ulrich Leuchtmann. The market is questioning the dollar’s role as a safe haven in light of the economic damage the U.S. faces if it does not get the coronavirus pandemic under control, he said.

The Norwegian crown gained around 0.5% against the dollar, at 9.319 NOK=D3.

The Swedish crown strengthened to its highest versus the U.S. dollar since February 2019, at 9.0555 SEK=D3. It has been supported recently by the fact that the Riksbank has not returned to negative rates.

The euro extended overnight gains to a four-month high of 1.14475 versus the dollar at around 1055 GMT, close to the euro-dollar's peak of 1.1495 in early March EUR=EBS. (Graphic: eurodollar, here)

The single currency was boosted by a combination of dollar weakness and hopes that European Union leaders will reach an agreement about the proposed coronavirus recovery fund at the EU summit on Friday and Saturday.

German Chancellor Angela Merkel said in a news conference with Spanish Prime Minister Pedro Sanchez on Tuesday that Germany would push for a compromise.

France believes it is possible to reach agreement on the recovery plan and budget, the office of the French presidency said on Wednesday.

“Optimism continues to build over the prospects for a more robust recovery in the euro-zone than in either the UK or the U.S.,” wrote MUFG strategist Derek Halpenny, adding that the options market showed strong call demand for euro-dollar upside.

“Our tracking of the demand for calls versus puts shows the skew in favour of calls at an unusually high level,” Halpenny said.

But Halpenny said that an agreement on the recovery fund was unlikely, and that the euro strength was therefore more likely to be due to Europe having better growth prospects than the U.S.

Commerzbank’s Leuchtmann, also struck a cautious note about the EU recovery fund.

“Frankly, I don’t think we will a compromise before very late in 2020,” he said.

That euro could fall if the market is disappointed by the outcome of the summit, he added.

U.S. President Donald Trump has ended Hong Kong’s preferential status as a trading partner. China responded by saying it will impose retaliatory sanctions on the United States.

The offshore Chinese yuan hit a one-week high overnight, and was up around 0.3% at 6.989 by 1056 GMT CNH=EBS.