FOREX-Dollar clambers off 2-1/2 year low, risk currencies take breather

* Dollar recovers from lowest in more than two years
* Euro hits fresh 2020 high
* Sterling falls on negative Brexit headline
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, Dec 2 (Reuters) - The dollar clambered off a
two-and-a-half-year low on Wednesday as investors assessed the
likelihood of further fiscal stimulus in the United States,
while a rally in riskier currencies lost steam.
By midday in London, the index that measures the greenback
against a basket of major currencies was 0.2% higher at 91.42
=USD , off the lowest level since late April 2018 it hit
overnight.
U.S. Treasury Secretary Steve Mnuchin and House of
Representatives Speaker Nancy Pelosi held stimulus talks for the
first time since the Nov. 3 election. A bipartisan group of
senators and House members proposed $908 billion worth of
coronavirus relief measures. Expectations of further stimulus and progress on COVID-19
vaccines in recent weeks have pressured the dollar as investors
bid risk assets higher. That move took a pause on Wednesday.
Later in the day, U.S. ADP national employment data is due.
"We have ADP employment data as the only standout in the US
calendar today, which should provide some direction for market
expectations ahead of Friday's payrolls," FX strategists at ING
said in a note to clients.
"Still, data is clearly playing second fiddle to vaccine and
stimulus news. Markets may retain an upbeat stance on the latter
for now as bipartisan talks resume, providing further support to
risk assets and reinforcing the bearish dollar argument."
In early trading in London, the euro set a 2020 high of
$1.2088 against the dollar, its highest since April 2018. It
last traded 0.2% lower at $1.2047. EUR=EBS
The European Central Bank meets next week, and analysts say
the euro could be pressured as investors worry the ECB will act
to curb its rapid rise.
Jordan Rochester, FX strategist at Nomura, said the euro may
struggle against the dollar for two reasons: speculative
positioning profit-taking and the possibility the ECB will cut
interest rates next week. He added that both were not too much
of a concern in the medium-term.
"We still expect further gains as medium-term flow factors
do seem to point towards continued EUR/USD strength in the new
year and with it we expect $1.25 to $1.30 in the years to come,"
he said in a note to clients.
Against the Japanese yen, the dollar rose 0.3% to 104.55
JPY=EBS .
The Bank of Japan's deputy governor signalled the central
bank was ready to extend pandemic-response programmes, saying it
would "take additional easing steps without hesitation as
needed". The British pound fell after news headlines saying the
United Kingdom's post-Brexit trade deal with the European Union
"still hangs in balance". GBP/
The EU's Brexit negotiator told the 27 national envoys on
Wednesday that differences in UK trade talks persisted,
according to a senior EU diplomat who was present at the
closed-door briefing. The pound last traded over half a percent lower to the
dollar at $1.3348 GBP=D3 .
The risk-sensitive Aussie traded flat following a brief
bounce in Asian hours as data showed Australia's economy
rebounded more than expected in the third quarter AUD=D3 .
The New Zealand dollar traded at $0.7046, down 0.2% on the
day, off two-and-a-half-year highs. NZD=D3 .
The onshore yuan last changed hands at 6.5555 per dollar
CNY= , up 0.1% on the day.
It briefly erased some gains after the New York Times
reported that U.S. President-elect Joe Biden will not
immediately act to remove the Phase 1 trade agreement President
Donald Trump signed with China.