December 17, 2020
By Kevin Buckland
TOKYO (Reuters) – The dollar set fresh 2-1/2-year lows against major rivals on Thursday as progress toward agreeing a U.S. stimulus package and a Brexit deal boosted risk appetite at the expense of the safest assets.
Congressional negotiators were “closing in on” a $900 billion COVID-19 aid bill, lawmakers and aides said on Wednesday, with the tone the most positive it’s been in months.
Across the Atlantic, the European Union’s chief executive said a deal with the UK was nearer, although success wasn’t guaranteed.
“As the world gets more optimistic about the outlook for growth in 2021, the dollar has softened,” said Michael McCarthy, chief strategist at broker CMC Markets in Sydney.
“Further weakening of the dollar is on the cards.”
The dollar index sank as low as 89.995 in Asia, breaking below 90 for the first time since April 2018.
The euro traded at $1.2280 in Asia, after earlier reaching $1.22350, also the strongest since April 2018.
The pound bought $1.3536 having risen to $1.3553 the previous session for the first time since May 2018.
The Federal Reserve on Wednesday vowed to keep funnelling cash into financial markets until the U.S. economic recovery is secure, a promise of long-term help that fell short of some investors’ hopes of an immediate move to shore up a recent pandemic-related slide.
The dollar index jerked higher after the Fed’s announcement, but the respite was short-lived.
“The U.S.’ long-term yield is too low to finance its current account deficit,” said Minori Uchida, chief currency strategist at MUFG Bank in Tokyo.
“As long as U.S. long-term yields stay at very low levels, the dollar will be weaker,” with scope to fall by as much as 10% against rivals like the euro, yen and Chinese yuan, he said.
The greenback was little changed at 103.475 yen, also a safe haven currency, but Uchida said it could break 100 by March.
The onshore yuan traded at 6.5366 per dollar, while its offshore counterpart changed hands at 6.5089, near the 6.4975 level it reached earlier this month for the first time since June 2018.
Meanwhile, the Swiss franc was little changed after touching a six-year high of 0.8826 per dollar on Wednesday, when the U.S. Treasury labeled Switzerland a currency manipulator.
The Treasury said that through June 2020 both Switzerland and Vietnam had intervened in currency markets to prevent effective balance of payments adjustments.
The Australian dollar touched 75.940 U.S. cents, the highest since June 2018. Its New Zealand peer reached 71.41 U.S. cents, a level unseen since April 2018.
Bitcoin traded as high as $22,181 after smashing through the $20,000 barrier for the first time overnight.
“Bitcoin is still on its latest tear,” Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney, wrote in a client note.
“I still don’t want one for Christmas.”
(Editing by Shri Navaratnam and Jacqueline Wong)
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