FOREX-Dollar falls as vaccine progress boosts risk appetite; sterling up more than 1%

* Dollar falls, Aussie and Kiwi gain as markets upbeat
* Pound sterling surges more than 1% as Brexit talks
continue
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

LONDON, Dec 14 (Reuters) - The dollar fell at the open of
European trade on Monday, with progress on COVID-19 vaccines
lifting risk appetite, while the British pound rose more than 1%
after Britain and the European Union agreed on Sunday to carry
on with Brexit negotiations.
The United States launched its first shipments of the
COVID-19 vaccine to distribution centres on Sunday, raising
hopes for a swift recovery from the global coronavirus-induced
economic downturn. The dollar was down around 0.2% against a basket of
currencies at 90.621 at 0804 GMT, staying within December's
ranges but not far from its lowest since 2018 =USD .
The risky Australian and New Zealand dollars were also up,
close to their strongest since 2018. At 0821 GMT, the Aussie - a
liquid proxy for risk - was up 0.4% versus the dollar at 0.75655
AUD=D3 .
U.S. dollar net short positioning in the latest week climbed
to its highest since late September, according to calculations
by Reuters and Commodity Futures Trading Commission data
released on Friday. "The dollar is starting the week on the backfoot as risk
appetite remains fairly upbeat on the back of vaccine roll-out
news, lingering hopes around a U.S. fiscal stimulus package and
some optimism on Brexit negotiations," wrote ING strategists in
a note to clients.
A $908 billion bipartisan COVID-19 relief plan, which could
be introduced in the U.S. Congress as early as Monday, will be
split into two packages in a bid to win approval, a person
briefed on the matter said. Brexit negotiations continue to command the attention of
market participants, with sterling up 1.2% against the dollar at
0822 GMT, after Britain and the EU agreed to press on with
difficult Brexit talks despite the expiry of another
self-imposed deadline on Sunday GBP=D3 . It was also up around
0.9% against the euro EURGBP=D3 . Implied volatility gauges with a one-week maturity showed
that expectations for price swings in dollar-sterling and
euro-sterling dipped down slightly from the eight-month highs
hit on Friday EURGBPSWO= GBPSWO= .
"Despite being a very close call at this stage, we still
think a deal is the most likely scenario and therefore expect a
GBP rally to materialise in the next two weeks," ING strategists
said.
"Still, the currency reaction function is asymmetrically
skewed to the downside as, despite last week's drop, GBP is
still pricing a good probability of a deal," they added.
The euro rose around 0.3% versus the dollar, at $1.2148 at
0834 GMT, as new restrictions on activity in Europe - including
a strict lockdown in Germany - had limited impact on market
sentiment. Elsewhere, China's yuan rose against the dollar as market
participants shrugged off an attempt by the Chinese central bank
to stem yuan appreciation by reducing capital inflows.

At 0831 GMT, the dollar was down around 0.3% on the day
versus the offshore yuan, at 6.5188 CNH=EBS .
For the week ahead, market participants will focus on a
series of central bank meetings, including the U.S. Federal
Reserve on Wednesday, which is expected to maintain dollar
weakness. "We expect the Fed's communication to put much more emphasis
on recent downside momentum heading into year end and risks to
the economy over the short-term even as Fed's forecasts for the
economy this year will be revised higher," wrote MUFG FX
strategist Lee Hardman in a note to clients.
"A strong commitment to maintain substantial stimulus into
next year should help to keep the US dollar on a weaker footing
going forward," he added.