Dollar Lowers; Hopes on Fed to Act in December

The dollar drifted lower in early European forex exchange trade on Monday. Vaccine optimism and expectations of more of Federal Reserve bounty see traders leave from the safe haven.

The Dollar Index was down 0.1% at 91.705 at 3:55 AM ET (0755 GMT). It‘s down to its lowest level since April 2018. Also, it’s set to record its largest monthly fall since July, down 2.5%.

EUR/USD edged up 0.1% to 1.1968, near a three-month high. Moreover, USD/JPY fell 0.1% to 104.03. 

Analysts at ING said, in a research note, they expect the greenback to stay on a gentle downtrend. The prospect of the central bank adding more liquidity if needed should keep a floor below risk assets, analysts said.  And the U.S. data-flow may remain mixed, they added.

Encouraging trial results for three major vaccine candidates have prompted investors to seek out riskier assets. Consequently, the dollar has been hit hard. That’s despite the wave of new infections, and fresh lockdowns, both in Europe and the United States.

Investors now expect the Federal Reserve to step in with more bond-buying at its next meeting in December. There was an absence of new fiscal stimulus from lawmakers to help the economy during the second Covid wave.

Fed head Jerome Powell’s testimony before Congress on Tuesday and Wednesday will be scrutinized for clues. This will include the central bank’s thinking and the monthly jobs report at the end of the week.

Currencies Movements

GBP/USD was up 0.3% to $1.3348, near a three-month high of $1.3399 seen late last week. Investors bet that a Brexit deal would be brokered in the near future.

The two sides are running out of time to secure a Brexit trade deal. This is a crucial week and they need to get a breakthrough. This was according to Environment Secretary George Eustice on Monday.

ING added the levels at which GBP trades, show that very little of the worst-case scenario is being priced in. Accordingly, should negotiations definitively collapse, the downside reaction should still be asymmetrical, it said. 

Meanwhile, in other forex news, Suzhou City is set to become the next city to sample China’s digital yuan. In the coming weeks, the city administrators will prepare to roll out central bank digital currency (CBDC) infrastructure.

Residents across the entire city will get the CBDC in so-called ‘red packets starting December. To be given away through a local lottery are 50,000 packets of digital currency.