Dollar plumbs two-year lows; Aussie and Kiwi stabilise

London

THE dollar index hit its lowest in more than two years on Thursday, while the euro held above US$1.21, as signs of progress towards US fiscal stimulus and optimism about Covid-19 vaccines kept investors upbeat even as the equity rally paused.

Lawmakers in Washington have failed to reach an agreement on economic stimulus to help relieve the impact of Covid-19 in the United States, but there were early signs that a US$908 billion bipartisan proposal could be gaining traction.

Risk appetite was also boosted by optimism about recent developments towards the roll-out of Covid-19 vaccines. The UK approved Pfizer Inc's vaccine on Wednesday.

Although the rally in European equities paused for breath, as data underscored the economic damage caused by the pandemic, currency markets were still "risk-on".

The dollar fell, hitting as low as 90.834 versus a basket of currencies - its lowest since April 2018. At 1124 GMT, it was at 90.918, down 0.1 per cent on the day.

The Australian dollar - seen as a liquid proxy for risk - was up 0.1 per cent on the day at 0.7423 at 1145 GMT, having earlier hit new two-year highs. The Kiwi dollar also held near recent highs, up 0.1 per cent on the day at 0.7072.

Joel Kruger, market strategist at LMAX Group, said the expectation of further stimulus meant that markets continued to look on the bright side.

"The market right now is focused on continuing to shrug off any downside risk and continuing to be fixated on any positive developments around the vaccine, around fiscal stimulus and, as things progress towards year-end, perhaps most importantly around messages and communications from the Federal Reserve and US administration," he said.

Although tensions between the US and China pose a downside risk, the latest developments have had limited impact on global markets because of the expectation of more normalised trade relations under the Biden administration.

The euro was also at its highest in more than two years, having crossed US$1.21 on Wednesday. It rose to as high as US$1.2139 on Thursday. At 1136 GMT, it was at US$1.2127.

The Japanese yen was steady at 104.3 at 1146 GMT, while the safe-haven Swiss franc was up around 0.2 per cent versus the euro at 1.082.

The pound was at US$1.3441, helped by the dollar weakness, as Brexit negotiations continue. EU diplomats said they hoped a Brexit trade deal with Britain could be agreed by Friday or at the weekend. REUTERS