* Control of both Houses gives Biden scope to push agenda
* Riskier currencies seen outperforming on growth prospects
* Dollar outlooks increasingly mixed
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Ritvik Carvalho
LONDON, Jan 7 (Reuters) - The dollar bounced off its lowest
levels since 2018 to its highest in a week on Thursday, its
gains attributed partly to safe-haven buying after violence on
Capitol Hill and profit-taking by investors who had been betting
on the euro.
The dollar index, which measures the U.S. currency against a
basket of peers, rose 0.6% to 89.886 =USD .
Hundreds of President Donald Trump's supporters stormed the
U.S. Capitol on Wednesday in a bid to overturn his election
defeat, battling police in the hallways and delaying the
certification of Democratic President-elect Joe Biden's victory
for hours. Broader currency markets were largely unperturbed by the
scenes of chaos in Washington, though analysts said the dollar's
rise on Thursday indicated some safe-haven buying.
The greenback has declined more than 13% from a March 2020
peak. While dollar positioning still remains bearish, analysts
views on the currency's prospects for 2021 are increasingly
mixed.
On the one hand, some argue rising inflation expectations
based on expected U.S. government stimulus will weigh on real
interest rates and put pressure on the dollar, especially with a
Federal Reserve that is expected to stand still on rates and
allow an inflation overshoot above 2%. Real interest rates are
interest rates adjusted for inflation.
Conversely, some analysts say that an extended period of
bearish positioning on the dollar, as well as rising Treasury
yields, could help lift the currency over the longer term.
"The lift in both nominal yields and inflation expectations
provides an interesting backdrop for asset prices," said Jane
Foley, head of FX strategy at Rabobank.
"As long as real rates are weak the dollar could remain under
pressure, particularly given the consensus view that the Fed
will allow inflation to overshoot its 2% target."
Foley added that if the market begins to see the U.S.
economy as likely to outperform again on growth and begins to
suspect that the Fed could be less likely to lean on the yield
curve, the dollar could find support.
LONG EURO
She also noted that the market remained long on the euro,
and a slow vaccine rollout in Europe could trigger some
profit-taking. The single currency sank as much as 0.6% to
$1.2245 EUR=EBS .
Bank of America Merrill Lynch said the long euro market
position also makes it "one of the most vulnerable G10
currencies to an overall market risk-off" and that, following
the dollar's sell-off last year, Europe's shared currency has
now reached a long-term equilibrium.
The Australian dollar slipped 0.83% to 77.39 U.S. cents
AUD= after touching a nearly three-year high of 78.195 on
Wednesday.
The dollar gained 0.6% to 103.64 yen JPY=EBS , touching its
highest level against the Japanese currency in more than a week.
The yuan was largely flat at 6.4655 per dollar CNY=CFXS
after Chinese authorities signalled a desire for a slower pace
of gains. The remarks by the State Administration of Foreign Exchange
(SAFE) on Wednesday follow an advance of around 10% on the
greenback since last May as China's economic rebound has led the
world's pandemic recovery.
The British pound GBP= traded 0.2 lower at $1.3577 as it
continued to meander below the almost three-year high of $1.3703
touched on Monday.
Bitcoin BTC=BTSP marked a fresh all-time high of $37,800
on Thursday, extending a surge of more than 800% since
mid-March. It last traded at $37,491.