Dollar languishes amid pandemic aid optimism, pound meanders

FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration
FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

December 29, 2020

By Kevin Buckland

TOKYO (Reuters) – The dollar languished near a 2-1/2-year low on Tuesday with demand for safe-havens flagging as U.S. lawmakers pushed forward with a COVID-19 relief package.

The House of Representatives voted on Monday to increase stimulus payments to qualified Americans to $2,000 from $600, sending the measure on to the Senate for a vote.

Last week’s Brexit agreement, while bare bones, also supported the outlook for global growth, lifting Asian stocks on Tuesday following Wall Street gains.

“Optimism abounds, and it’s generally coming from equity markets,” said Bart Wakabayashi, Tokyo Branch manager of State Street Bank and Trust.

“The dollar is very heavy, and that will continue into next year.”

The dollar index was little changed at 90.194 in holiday-thinned trading, hovering near the 89.723 level reached on Dec. 17 for the first time since April 2018.

Short positions on the dollar swelled in the week ended Dec. 21 to $26.6 billion, the highest in three months, according to Reuters’ calculations based on data released by the Commodity Futures Trading Commission on Monday.

The euro rose 0.1% to $1.22260 early in the Asian session, hovering near the 2-1/2-year high of 1.22735 touched earlier this month.

The dollar bought 103.740 yen, another haven asset.

Sterling rose 0.1% to $1.3477 following a two-day decline. It was as high as $1.3625 this month, a level not seen since May 2018.

Investors have taken profits in the UK currency following the confirmation last week of a Brexit trade deal that was widely expected.

While the agreement came as a relief to investors, the pact leaves Britain far more detached from the EU, analysts say.

“People are still trying to figure out what this Brexit agreement means,” weighing on the pound, said State Street’s Wakabayashi.

“Nothing has really been agreed on financial markets, and that’s a big negative for the UK.”

Bitcoin slipped 0.8% to $26,841, continuing its retreat from the all-time high of $28,377.94 set Sunday.

(Reporting by Kevin Buckland; Editing by Sam Holmes)