Currency markets stay 'risk-on' as dollar hits lowest since 2018

December 30, 2020

LONDON (Dec 30) - The dollar slid to its lowest in more than two years on Wednesday and riskier currencies gained, as investors looked past rising COVID-19 infections and the latest delay in U.S. fiscal stimulus talks to bet on an economic recovery in 2021.

Lockdown measures in England will be extended, and U.S. President-elect Joe Biden warned that it could take years for most Americans to be vaccinated against COVID-19 at current rates.

U.S. Senate Majority Leader Mitch McConnell on Tuesday blocked a vote on increasing COVID-19 relief payments to $2,000, adding another delay to fractious negotiations over fiscal stimulus.

But market sentiment was upbeat as investors remained optimistic that a stimulus deal will be eventually reached and that COVID-19 vaccines will facilitate a global economic recovery, lessening demand for the safe-haven dollar.

The latest setback “doesn’t really matter too much for investors, as they have been over the moon on the back of news that there is still plenty of fiscal support for the U.S. economy,” Naeem Aslam, chief market analyst at Avatrade, said in a note.

Analysts expect the dollar to weaken further in 2021 as U.S. President-elect Biden is expected to push for even more measures to support the U.S. economy.

The “risk-on” moves in currency markets saw major currencies reach record levels in the Asian session on Wednesday, ease off as European markets opened, then hit new records as the European session continued.

At 1159 GMT, the dollar was down around 0.3% versus a basket of currencies at 89.737, having dropped as low as 89.681 shortly before 1100 GMT. The euro was up at $1.22715.


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