* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Ritvik Carvalho and Kevin Buckland
LONDON, Feb 5 (Reuters) - The dollar headed for its best
weekly gain in three months on Friday, lifted by growing
confidence that the U.S. economic recovery will outpace its
global peers.
The dollar index =USD touched a two-month high in Asian
trade amid signs of resilience in the labour market, with
closely watched U.S. nonfarm payroll figures due later. It
retreated in early London deals. The dollar greenback also renewed highs versus the euro and
yen during Asian trade, although both currencies recouped their
losses in European trade.
"The U.S. economy is exceptionally strong relative to other
countries, causing dollar short-covering," said Tohru Sasaki,
J.P. Morgan's head of Japan market research in Tokyo, pointing
to employment and manufacturing indicators as well as the pace
of vaccinations.
The current bout of dollar strength could continue for
"several weeks," he said, but the picture is murkier thereafter
as Europe and Asia catch up with immunisations and the Federal
Reserve's continued ultra-easy monetary policy caps a rise in
long-term U.S. yields.
The dollar index touched 91.60 for the first time since Dec.
1, before drifting back lower to 91.375 by 0853 GMT.
The gauge has risen every day this week and is on track for
a 1.1% weekly advance, the most since Nov. 1 and building on a
0.3% rise the previous week.
The dollar has been supported by a rise in longer-term U.S.
Treasury yields, which came as traders positioned for massive
fiscal spending. Democrats in the U.S. Senate were poised for a marathon
voting session aimed at overriding Republican opposition to
President Joe Biden's $1.9 trillion COVID-19 relief proposal.
Strategists at ING said a softening correlation of the
dollar with equity markets was noticeable, though it was hard to
account for. They noted that while U.S. Treasury yields have
picked up in the past week, they have been matched by an
equivalent rise in German bunds.
"And certainly, the US vaccination roll-out looks far more
impressive than that in Europe, though year-to-date gains in the
US S&P 500 (+3.08%) only marginally outpace those of the
Eurostoxx 50 (+2.52%)," they said.
"Heavy short dollar positioning probably plays a big role
here and would again seem vulnerable were any part of today's
non-farm payrolls jobs data to be greeted positively."
Analysts and investors are weighing whether dollar strength
this year is a temporary position adjustment after a 7% drop for
the dollar index in 2020, or a longer-lasting shift away from
dollar pessimism.
There are potentially a lot of dollar shorts to cover,
particularly against the yen, where hedge funds had racked up
their biggest bearish bets since 2016.
The dollar was 0.2% lower at 105.36 yen on Friday after
earlier edging as high as 105.70 for the first time since Oct.
20.
The euro was 0.2% higher at $1.1981 after dipping to
$1.1952, a level not seen since Dec. 1.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
World FX rates https://tmsnrt.rs/2RBWI5E
Dollar on course for best week in 3 months https://tmsnrt.rs/3axHSYM
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>