Dollar hits new 2½ year low after month of losses

London

THE dollar hit its lowest in 2½ years on Monday while riskier currencies were mixed, as the global equities rally that has seen risk appetite surge in November paused for breath.

A combination of Joe Biden's US election win, hopes for further stimulus and a series of positive Covid-19 vaccine announcements has seen global market sentiment rally last month, prompting the dollar to fall and riskier currencies to strengthen.

China's manufacturing grew at its fastest pace in more than three years in November, while services sector growth hit a three-year high, data on Monday showed.

On the last day of November, the dollar was set for its biggest monthly loss against a basket of currencies since July, having wiped 2.5 per cent off its value in November. At 1217 GMT it was at 91.625, down 0.1 per cent on the day.

Meanwhile the New Zealand dollar was poised for its biggest monthly gain since late 2013, helped by a perception that the improving global economic outlook lessens the risk of negative rates. At 1218 GMT, it was up 0.1 per cent on the day at 0.7042 per US dollar, having hit a new two-year high overnight.

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"From a risk perspective, the equity market performances have been very, very significant and that has a been a key factor in what looks like very clear recycling out of US dollars into non-dollar assets, taking advantage and positioning for a more sustained pick-up in global growth," said Derek Halpenny, EMEA head of research for global markets at MUFG. "I wouldn't expect the same in December," he added. "I think that scale of risk-on is unsustainable and I think now a fair degree of good news in terms of global reflation is priced for 2021."

The offshore yuan is on course for its longest streak of monthly gains in six years, boosted by China's economic recovery from Covid-19 and steady capital inflows. At 1222 GMT, it was slightly up on the day at 6.5694 versus the dollar.

The Trump administration is poised to add China's top chipmaker SMIC and national offshore oil and gas producer CNOOC to a blacklist of alleged Chinese military companies, according to a document and sources, escalating tensions with Beijing weeks before Mr Biden takes office.

Elsewhere, the euro rose to new three-month highs of US$1.19905. Investors are watching for the key US$1.20 level, after the European Central Bank signalled earlier this year that it was carefully monitoring the euro-dollar exchange rate.

But MUFG's Mr Halpenny said the US$1.20 level is not a cause for concern for the ECB, since the trade-weighted euro index is more steady, indicating that the move is dollar-driven. Brexit negotiations remain the focus for the pound, which was steady against the euro at 89.80 pence per euro. REUTERS