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Dollar hits 2-year low as US stimulus optimism boosts risk taking

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

twitter-logoReuters | December 29, 2020 | Updated 22:12 IST
Dollar hits 2-year low as US stimulus optimism boosts risk taking
The dollar fell 0.35% against a basket of currencies to 89.92

The dollar hit a more than two-year low against the euro on Tuesday, and riskier currencies including the Australian and Canadian dollars gained as optimism that U.S. lawmakers would enlarge stimulus payments to individuals boosted risk sentiment.

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 possibility of another U.S. stimulus package has lifted the market's spirits," FX analysts at Scotiabank said in a report. "Still, market optimism may be somewhat unwarranted as the legislation faces little chance of passing in the Senate as Republicans attempt to rein in spending - but rejecting increased payments amid pressure from Trump could risk their showing in the Jan. 5 Georgia Senate runoffs," they added.

Georgia Republican incumbents Kelly Loeffler and David Perdue face crucial Senate runoffs next month that will determine who controls the chamber.

The dollar fell 0.35% against a basket of currencies to 89.92. It is holding just above a two-and-a-half year low of 89.72 reached on Dec. 17.

Investors are betting the greenback will continue to decline - it fell more than 6% this year - on expectations the Federal Reserve will hold interest rates near zero and the U.S. economy will struggle to recover from coronavirus-related shutdowns.

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.

The Aussie gained 0.34% to $0.7608. It reached $0.7639 on Dec. 17, the highest since June 2018.

The greenback slipped 0.40% against the Canadian dollar to 1.2797 Canadian dollars.

The loonie reached 1.2684 on Dec. 17, the strongest since April 2018.

The euro gained 0.40% to $1.2265 after getting as high as $1.2274, the highest since April 2018.

The single currency has also been buoyed by a trade deal reached last week for Britain to leave the European Union. Though the agreement is not comprehensive, it avoided a damaging no-deal outcome.

Sterling rose 0.28% to $1.3496 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.

Bitcoin fell 1.17% to $26,720 after hitting a record $28,378 on Sunday. XRP 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.

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