* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
By Saikat Chatterjee
LONDON, Feb 2 (Reuters) - The euro wallowed at seven-week
lows against the dollar on Tuesday as concern about extended
lockdowns in the euro zone weighed on the single currency and
optimism about U.S. stimulus boosted the dollar.
Initial European Union estimates showed the euro zone
economy contracted less than expected in the fourth quarter of
2020 amid pandemic-induced lockdowns. But it is heading for
another, probably steeper decline in the first quarter of this
year. Those concerns were amplified after retail sales in Germany,
Europe's biggest economy, plunged by more than forecast in
December, according to data on Monday.
"Things are looking even more depressing here," Commerzbank
strategists said in a daily note.
"The German retail sales for December disappointed
massively, presenting a first taste of how the service sector is
suffering under the current European lockdowns, which is likely
to be reflected in the corresponding PMIs (purchasing managers'
indexes) over the course of the week."
Against the dollar, the euro EUR=EBS was trading at
$1.2078, just above an early December low of $1.2056 the day
before. It has weakened more than 2% from an early January peak
of near $1.2350.
The dollar index =USD eased by 0.1% to 90.87 amid further
gains for global stocks but remained not far from its overnight
peak of 91.063, its strongest since Dec. 10.
The dollar also benefited from a massive bout of
short-covering, especially against the yen, where hedge funds
had racked up their biggest short bets against the dollar since
October 2016.
Against the yen, the dollar briefly crossed 105 yen for the
first time since mid-November and held firm at 104.875 yen
JPY=EBS .
STIMULUS HOPES
Many see the dollar's rebound since early last month as a
correction after its relentless decline - the dollar index lost
almost 7% in 2020 - on expectations of a global recovery from
the pandemic, amid massive fiscal spending and continued
ultra-easy monetary policy.
However, some like Claire Dissaux, head of strategy at
Millennium Global, remain cautious on the dollar, citing the
relative appeal of the valuation of European assets compared
with U.S. markets.
"The short-term outlook is relatively more negative for
Europe than the U.S., but the longer term outlook is more
constructive," she said.
The dollar also remained supported on signs that President
Joe Biden was poised to push forward with his $1.9 trillion
COVID-19 relief plan even if it fails to draw Republican
support. Negotiations resume on Tuesday. Elsewhere, the Australian dollar pared gains after the
country's central bank said it will extend its quantitative
easing programme to buy an additional $100 billion of bonds, a
decision that many market players thought would wait until next
month. The Aussie last stood at $0.7634 AUD=D4 , a touch higher on
the day but off the day's high of $0.7662.
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World FX rates https://tmsnrt.rs/2RBWI5E
USD positions https://tmsnrt.rs/36zTIAb
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