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Dollar on the defensive as US leaders meet on stimulus, pound buoyed by Brexit hopes

New York - Vaccine roll-outs stoke risk appetite, undermining dollar

By Reuters

Published: Wed 16 Dec 2020, 8:06 AM

Last updated: Wed 16 Dec 2020, 8:09 AM

The dollar languished near 2 1/2-year lows on Wednesday as progress toward a massive US government spending bill and COVID-19 relief measures whetted risk appetite, sapping demand for the safest assets.

Also supporting sentiment, the US expanded its roll-out of a vaccine from Pfizer Inc and German partner BioNTech SE , while another developed by Moderna Inc appeared set for approval this week.

The British pound held on to more than 1 per cent of gains made on Tuesday following a report that an elusive Brexit trade deal may now be close, even as British Prime Minister Boris Johnson repeated that the most likely outcome of talks was no deal.

The dollar changed hands at $1.21540 per euro, near the 2 1/2-year low of $1.2177 touched on Monday. It traded at 103.64 yen, after declining 0.4 per cent against the Japanese currency on Tuesday.

The pound was last at $1.3444, following a 0.9 per cent jump in the previous session. It reached $1.3540 earlier this month, a level not seen since mid-2018.

“Because of all the positives that have hit the market, from vaccines to stimulus, we’re seeing dollar weakness across the board,” said Bart Wakabayashi, Tokyo branch manager of State Street Bank in Tokyo.

“There’s a feel good momentum in the market.”

Top US congressional leaders began a second meeting on Tuesday to finalise $1.4 trillion in spending and end a standoff on coronavirus relief, after signalling optimism following their first gathering.

Investors are also keeping an eye on the outcome of a two-day Federal Reserve policy meeting on Wednesday. Policymakers are expected to keep the key overnight interest rate pinned near zero and signal it will stay there for years to come, a decision that analysts say will further boost investors’ risk sentiment.

Many analysts also expect new guidance on how long the Fed will keep up its massive bond-buying program.

The dollar index, which measures the greenback against a basket of currencies, was last at 90.477, after sinking as low as 90.419 on Monday, a level not seen since April 2018.

The Australian dollar was little changed at 75.525 US cents, near the 2 1/2-year high of 75.780 it recorded Monday.

The New Zealand dollar traded at 70.86 US cents after reaching 71.20 on Monday for the first time since April 2018.