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FOREX-Dollar capped as U.S. leaders meet on stimulus, pound underpinned by Brexit hopes

Published 16/12/2020, 06:08
© Reuters.
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* U.S. politicians cite progress as stimulus talks continue
* Vaccine roll-outs stoke risk appetite, undermining dollar
* Some market players expect Fed to enhance bond purchase
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Kevin Buckland and Hideyuki Sano
TOKYO, Dec 16 (Reuters) - The dollar languished near
2-1/2-year lows on Wednesday as progress toward a massive U.S.
government spending bill and COVID-19 relief measures whetted
risk appetite, sapping demand for the safest assets.
Also supporting sentiment, the U.S. expanded its roll-out of
a vaccine from Pfizer Inc PFE.N and German partner BioNTech SE
BNTX.O , while another developed by Moderna Inc MRNA.O
appeared set for approval this week. The British pound held on to more than 1% 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 $1.21630 per euro EUR= , near
the 2 1/2-year low of $1.2177 touched on Monday. It traded at
103.44 yen JPY= , dipping 0.2% on Wednesday.
The pound was last at $1.3463 GBP=D3 , following a 0.9%
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 U.S. 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 focus is whether the Federal Reserve will extend the
duration of bonds it buys. I think the chance of the Fed doing
so is relatively low and that we could see the dollar bouncing
back if the Fed avoids that," said Yujiro Goto, chief FX
strategist at Nomura Securities.
The dollar index, which measures the greenback against a
basket of currencies, was last at 90.447 =USD , after sinking
as low as 90.419 on Monday, a level not seen since April 2018.
With its former support level of 91 now acting as a
resistance, the index could head to as low as 88, said State
Street's Wakabayashi. It hit a three-year low of 88.251 in
February 2018.
"If we get some momentum to the downside I think we'll start
talking about 88 as the next level that. Although far away, I
think that's in play," he said.
The Australian dollar was little changed at 75.595 U.S.
cents AUD=D4 , near the 2-1/2-year high of 75.780 it recorded
Monday.
The New Zealand dollar traded at 71.05 U.S. cents NZD=D4
after reaching 71.20 on Monday for the first time since April
2018.

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