Dollar Weakens as Stimulus, Vaccine Optimism Grows

© Reuters.
© Reuters.

By Peter Nurse

Investing.com – The dollar continued to head lower in early European trade Wednesday, with traders deserting the safe haven as U.S. lawmakers make progress toward a Covid-19 relief package ahead of the Federal Reserve meeting.

At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 90.317, falling to levels last seen in April 2018.

fell 0.2% to 103.44, rose 0.2% to 1.2170, trading near a 2 1/2-year high of 1.2177 touched on Monday, while the risk-sensitive was up 0.1% at 0.7564, near the June 2018 high of at 0.7580 seen on Monday.

Support appears to be growing in Congress for a slimmed down proposal to help ailing businesses and households during this surge in Covid-19 cases.

A bipartisan group had originally proposed a $908 billion stimulus bill, but this has now been split into two parts. The first part, which includes a $748 billion proposal, including aid for vaccine distribution and unemployed benefits, appears to be gaining traction, and could be passed by the end of the week.

The second part, a $160 billion bill for state and local support and temporary Covid-19 liability protection, appears to be having more difficulty in gathering the necessary support.

Adding to the positive risk sentiment is progress towards another Covid-19 vaccine, with Moderna ‘s  (NASDAQ:) candidate looking likely to receive U.S. regulatory authorization within the week. This comes after the U.S. expanded its roll-out program for Pfizer’s rival vaccine.

The Federal Reserve concludes its final of the year later Wednesday, with market participants looking to see if the central bank increases its bond-buying program as the recent surge in the Covid-19 pandemic prompts more lockdowns.

“The Federal Reserve will likely steer clear of more stimulus, but ramp up its dovish rhetoric and emphasize the need for more fiscal support as Covid-19 containment measures increasingly weigh on economic activity,” analysts at ING said, in a research note.

Ahead of the Fed decision, EUR/USD has the potential to be moved either by Eurozone purchasing managers indices and, at 8:30 AM ET, U.S. for November.

Elsewhere, rose 0.2% to 1.3488, climbing towards the 1.3540 level seen earlier this month, a level not seen since mid-2018, amid optimism that a Brexit trade deal can be agreed.

If a trade agreement isn’t struck by the end of the year, free movement of goods and services between the two zones will come to an end, potentially affecting around $1 trillion in annual trade.

Earlier Wednesday, British inflation fell by much more than expected in November, as rose 0.3% in annual terms, below the 0.6% expected, after a 0.7% rise in October.

 

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