Dollar near 2018 lows as traders eye more US stimulus

London

THE US dollar index remained near Friday's two-and-a-half-year low on Monday after weak US jobs data heightened expectations of economic aid, while sterling sank as Britain and the European Union made a last-ditch attempt to strike a trade deal.

Fears grew of a chaotic no-trade deal Brexit on Dec 31 when the United Kingdom finally leaves the EU.

In the United States, Friday's jobs data showed non-farm payrolls increased by 245,000 last month, the smallest gain since May, a sign that the jobs recovery was slowing.

"The recent loss of momentum is a concern as it suggests that it will take longer to reverse the negative hit to the US labour market from the Covid-19 shock, given renewed disruption from the third wave," said Lee Hardman, currency analyst at MUFG, adding that this "will increase pressure on both Congress and the Fed to deliver further stimulus".

Talks aimed at delivering fresh Covid-19 relief gathered momentum in the US Congress on Friday, as a bipartisan group of lawmakers worked to put the finishing touches on a US$908 billion bill. Members of Congress are expected to offer the legislation soon.

In addition, the Federal Reserve is expected to make more adjustments to its quantitative easing later this month.

"In the current trading environment, the increasing speculation over looser US fiscal and monetary policies provides support for risk assets and weighs on the US dollar," Mr Hardman said.

An index that tracks the dollar against a basket of currencies was last trading up 0.2 per cent at 91, close to 90.47, its weakest since April 2018.

Over the past week, the US dollar sell-off has extended further, with weakness most evident against the Swiss franc, euro and Canadian dollar.

The euro fell 0.1 per cent to US$1.2110, but remained close to US$1.2177, its highest since April 2018. It was unaffected by data showing booming car sales that drove a stronger-than-expected jump in German industrial output in October.

Leveraged funds continued to add more euro long positions in the week to Dec 1, taking the total amount to US$21 billion, according to data from Commodity Futures Trading Commission (CFTC).

The British pound was down 1.2 per cent at US$1.3275 and by 1.3 per cent against the euro at 91.35 pence, after reaching two-and-a-half week lows against both the dollar and the euro.

The biggest move in positioning happened in the Japanese yen, with hedge funds taking the total yen longs to a four-week high of a total US$5.71 billion.

Elsewhere, the Australian dollar fell 0.5 per cent at 0.7385 versus the US dollar. The New Zealand dollar shed 0.3 per cent.

The Japanese yen was flat versus the dollar at 104.24. REUTERS