Dollar Down to New Lows over Stimulus Talks

U.S. dollar

The dollar weakened in early European forex trade on Wednesday. Vaccine optimism and further fiscal stimulus talks from the United States encouraged higher-yielding currencies.

At 3:55 AM ET (0755 GMT), the Dollar Index was down 0.2% at 91.157. It was hitting its lowest levels since April 2018.

EUR/USD climbed 0.2% to 1.2081, its highest in over two-years. It was helped by strong German retail sales for October. Sales increased by 2.6% in the month after an upwardly revised drop of 1.9% in September. 

USD/JPY gained 0.2% to 104.47. The risk-sensitive AUD/USD rose 0.2% to 0.7381.

Optimism about promising vaccine trials has driven the buying of riskier currencies at the expense of the dollar. On Wednesday, the U.K. approved the Pfizer/BioNTech coronavirus vaccine for widespread use. It was the first country to do so and is potentially rolling it out next week. 

Profiting most, however, has been commodity-currencies. The Canadian dollar hit a new 52-week high in early trading.

Furthermore, a bipartisan group of U.S. Senators and House members gave their proposal. It was for $908 billion worth of coronavirus relief measures.

Senate leader Mitch McConnell has kiboshed this bill. Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi are talking again for the first time since the election.

With that, expectations are growing that a package can be agreed upon in the lame-duck period of the Trump administration.

Fragile U.S. Economy

Federal Reserve Chairman Jerome Powell warned that the U.S. economy remains in a fragile state. This was during Tuesday’s hearing before the Senate Banking Committee. It is putting pressure on Congress to provide more fiscal help.

The Fed Chairman is due to testify before Congress again later in the day. Moreover, the Fed meets for its policy meeting on Dec. 15 to 16. 

Later Wednesday, the ADP employment release will also be eyed ahead of Friday’s official jobs data.

ING’s Francesco Pesole, in a research note, said, CFTC FX positioning data ending 24 November highlights new USD selling pressure. All but one of the G10 currencies forecasted an increase in long positioning vs the US dollar.

In the eurozone, GBP/USD gained 0.2% to $1.3438, close to a three-month high. Focus remains on the Brexit trade deal talks.

EU Brexit negotiator Michel Barnier is due to brief leaders that there may be no deal by the end of 2020.

Meanwhile, the Pound to Australian Dollar (GBP/AUD) exchange rate fell by -0.4% today. The pairing currently trades around AU$1.811.

The AUD rallied today following the release of the Australian GDP data for Q3, which beat forecasts. It rose by 3.3% quarter-on-quarter.

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