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FOREX/BONDS-Euro cruises higher as dollar slips again

Stock MarketsDec 29, 2020 14:18
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© Reuters.

(Updates ahead of U.S. trading)
* U.S. House votes to increase stimulus cheques to $2,000
* Dollar short positions at the highest in three months
* Euro cruising higher after Brexit trade deal
* Graphic: World FX rates in 2020

By Marc Jones
LONDON, Dec 29 (Reuters) - Currency traders scooped up
riskier currencies and bonds at the expense of the safe-haven
U.S. dollar on Tuesday, after Washington's lawmakers pushed
forward with an enhanced COVID-19 relief package.
The House of Representatives voted on Monday to more than
triple stimulus payments to Americans, to $2,000 from $600,
sending the plan on to the Senate for a vote. The euro and pound also strengthened as London reopened
after its Christmas break still digesting the Christmas Eve
EU-UK trade deal that, although not comprehensive, had avoided a
damaging no-deal outcome. Euro bulls pushed the single currency up to $1.2235 EUR= ,
also buoyed by talk of a EU-China trade pact. The pound was back
above $1.35 GBP= as the FTSE surged .EU . The dollar index
=USD was down 0.3% near the lows of April 2018.
"Overall, the U.S. large basic balance of payments deficit
points to a weaker USD and valuation suggests there is plenty of
room for the USD to adjust lower," Elias Haddad at Commonwealth
Bank of Australia (CBA) in London wrote in a note.
Data released by the Commodity Futures Trading Commission on
Monday showed traders increased bets against the dollar in the
week ended Dec. 21 to $26.6 billion. That was the highest in
three months, according to Reuters calculations. Sterling long positions grew before the trade deal, the
figures also showed, though the next set of data will reveal
whether speculators "sold the fact".
Sterling rose 0.3% to $1.35 GBP= following a two-day dip.
It was as high as $1.3625 this month, a level unseen since May
2018, but investors have taken some profits since the Brexit
trade deal was struck.
Nick Nelson, head of European Equity Strategy, said the
firm's FX strategists were targeting GBP/USD $1.44 by the end of
2021. That would leave it just 4% below where it was at the
start of the 2016 Brexit vote year.
Bart Wakabayashi, Tokyo branch manager of State Street Bank
and Trust said, however, "nothing has really been agreed
(between the EU and London) on financial markets, and that's a
big negative for the UK."
Financial services contribute about 7% of the UK's economic
output, and roughly 43% of UK financial services exports goes to
the EU, CBA's Haddad pointed out. CBA sees the pound rising to
$1.40 over the "next few months".

Other currencies also rose. The Australian dollar gained
0.3% to 76.035 U.S. cents. Its New Zealand counterpart added
0.5% to 71.35 U.S. cents.
The Chinese yuan gained 0.2% to 6.5192 per dollar in the
offshore market CNH=EBS . It changed hands onshore at 6.5310
per dollar CNY=CFXS while other emerging-market currencies,
including the Korean won KRW= , Mexican peso MXN= and South
African rand ZAR= , were also higher. EMRG/FRX
There was turbulence in the cryptocurrency markets. XRP
XRP=BTSP the third-biggest digital currency, slumped by over a
fifth to its lowest since July after Coinbase, a major U.S.
virtual coin exchange, said it would suspend XRP trading.
The move came after U.S. regulators charged Ripple, a
blockchain firm associated with XRP, with conducting a $1.3
billion unregistered securities offering. Ripple has denied the
charges. Bitcoin slipped 1% to $26,857 BTC=BTSP , continuing its
retreat from the record high of $28,377.94 it had set on Sunday.
In the bond markets, benchmark German 10-year government
bond yields sank another basis point to -0.57% DE10YT=RR ,
outperforming 10-year Treasury yields, which were fractionally
higher at 0.945% after a U.S. bond auction. US10YT=RR
British two-year government bond yields GB2YT=RR fell to a
record low of -0.170 after the Brexit deal, as UK coronavirus
cases continued to spike. Yields on 10-year
southern European bonds - deemed riskier with lower credit
ratings - also fell. IT10YT=RR , ES10YT=RR , PT10YT=RR

FOREX/BONDS-Euro cruises higher as dollar slips again

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