News

Daily updates on foreign exchange news

Dollar Weakens as Stimulus, Vaccine Optimism Grows

The dollar continued to head lower in early European trade Wednesday, with traders deserting the safe haven as U.S. lawmakers make progress toward a Covid-19 relief package ahead of the Federal Reserve meeting.


At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 90.317, falling to levels last seen in April 2018.


USD/JPY fell 0.2% to 103.44, EUR/USD rose 0.2% to 1.2170, trading near a 2 1/2-year high of 1.2177 touched on Monday, while the risk-sensitive AUD/USD was up 0.1% at 0.7564, near the June 2018 high of at 0.7580 seen on Monday.


Support appears to be growing in Congress for a slimmed down proposal to help ailing businesses and households during this surge in Covid-19 cases.


A bipartisan group had originally proposed a $908 billion stimulus bill, but this has now been split into two parts. The first part, which includes a $748 billion proposal, including aid for vaccine distribution and unemployed benefits, appears to be gaining traction, and could be passed by the end of the week.


The second part, a $160 billion bill for state and local support and temporary Covid-19 liability protection, appears to be having more difficulty in gathering the necessary support.


Adding to the positive risk sentiment is progress towards another Covid-19 vaccine, with  Moderna 's  (NASDAQ:MRNA) candidate looking likely to receive U.S. regulatory authorization within the week. This comes after the U.S. expanded its roll-out program for Pfizer’s rival vaccine.


The Federal Reserve concludes its final policy-setting meeting of the year later Wednesday, with market participants looking to see if the central bank increases its bond-buying program as the recent surge in the Covid-19 pandemic prompts more lockdowns.


“The Federal Reserve will likely steer clear of more stimulus, but ramp up its dovish rhetoric and emphasize the need for more fiscal support as Covid-19 containment measures increasingly weigh on economic activity,” analysts at ING said, in a research note.


Ahead of the Fed decision, EUR/USD has the potential to be moved either by Eurozone purchasing managers indices and, at 8:30 AM ET, U.S. retail sales for November.


Elsewhere, GBP/USD rose 0.2% to 1.3488, climbing towards the 1.3540 level seen earlier this month, a level not seen since mid-2018, amid optimism that a Brexit trade deal can be agreed.


If a trade agreement isn’t struck by the end of the year, free movement of goods and services between the two zones will come to an end, potentially affecting around $1 trillion in annual trade.


Earlier Wednesday, British inflation fell by much more than expected in November, as consumer prices rose 0.3% in annual terms, below the 0.6% expected, after a 0.7% rise in October.


Reference by: investing.com

Dec 16, 2020

Return