* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
LONDON, Dec. 3 (Reuters) - The dollar index hit its lowest
in more than two years on Thursday, while the euro rose above
$1.21 as signs of progress towards U.S. fiscal stimulus and
optimism about vaccines made investors more ready to move funds
to riskier assets.
Lawmakers in Washington have failed to reach an agreement on
economic stimulus to help relieve the impact of COVID-19 in the
United States, but there were early signs that a $908 billion
bipartisan proposal could be gaining traction. Risk appetite was also boosted by optimism about recent
developments towards the roll-out of COVID-19 vaccines. The UK
approved Pfizer Inc's vaccine on Wednesday. The dollar fell, hitting as low as 90.834 versus a basket of
currencies - its lowest since April 2018. At 0820 GMT it was at
90.890, down 0.1% on the day =USD .
"Additional fiscal stimulus ahead of the new President Joe
Biden assuming office would lower the current downside risks for
the economy and thus principally fuel inflation expectations,
which will weaken the dollar in view of the Fed's long-term
expansionary monetary policy targets," wrote Commerzbank FX
strategist Esther Reichelt in a note to clients.
"The subject is likely to remain an important issue on the
FX market for now," she said.
The euro was also at its highest in more than two years,
having crossed $1.21 on Wednesday, it rose to as high as
$1.21390 on Thursday. At 0826 GMT, it was at $1.2129 EUR=EBS .
The moves in the euro are largely due to dollar weakness,
rather than idiosyncratic euro drivers, ING strategists wrote in
a note.
The European Union is embroiled in a dispute with members
Hungary and Poland over its budget and COVID-19 recovery fund.
The announcement of the recovery fund plan saw the euro surge
earlier this year. "If one considers how clearly the euro benefitted from the
EU countries being able to agree on the recovery fund in July it
does come as a surprise that the euro is not suffering more
significantly now that the project is on the brink,"
Commerzbank's Esther Reichelt wrote.
The Australian dollar - seen as a liquid proxy for risk -
was up 0.2% at 0.74275, its strongest since 2018 AUD=D3 .
The kiwi dollar held near recent two-and-a-half year highs,
up 0.1% on the day at 0.7075 NZD=D3 .
The Japanese yen was steady at 104.350 at 0837 GMT
JPY=EBS , while the safe-haven Swiss franc was up around 0.1%
versus the euro at 1.08305 EURCHF=EBS .
Market participants were waiting for PMI services data for
November, released throughout the morning, to indicate the
extent of the economic hit from COVID-19 in Europe.
The pound was at $1.3396, helped by the dollar weakness, as
Brexit negotiations continue. Britain's education secretary said
that "good progress" was being made on a deal and the Irish
foreign minister said that he sees a "good chance that we can
get a deal across the line in the next few days."
But options markets signalled doubts that a deal can be
reached before the UK's transition period ends in four weeks'
time.
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