US dollar at 1-month high, euro slips to 6-week low

London

THE US dollar strengthened for a third consecutive day on Monday to a four-week high, as an undercurrent of risk aversion swept through currency markets, knocking the Australian dollar and the British pound lower.

With US markets shut for a holiday on Monday and US President-elect Joe Biden set to be inaugurated as the next US president on Wednesday, major currencies remained within well-worn ranges, watching carefully the new administration's stance on the greenback.

While outgoing US President Donald Trump has publicly railed against the US dollar's strength for years, Janet Yellen, Mr Biden's pick to take over the US Treasury, is expected to make clear that the United States does not seek a weaker US dollar, said The Wall Street Journal.

Moreover, Mr Biden's plan for a US$1.9 trillion stimulus package has also fuelled a broad-based rise in US Treasury yields and reversed a late 2020 fall in the value of the greenback.

"I would expect differences in fiscal stimulus to be a driving force for relative performance of currencies this year as it is directly linked to the economic recovery story," said Wouter Sturkenboom, an investment strategist at Northern Trust Asset Management.

The US dollar index drifted higher to a one-month high and last traded at 90.94, its highest level since Dec 21.

After a US dollar sell-off last year, the opening weeks of 2021 have seen a reversal of fortunes with a broad US dollar basket rising nearly 2 per cent so far this year thanks to a broad-based rise in US Treasury yields, though analysts remain wary about the short-term outlook.

The US dollar's gains might also receive support from an unlikely source. Weekly positions in the currency markets show that hedge funds have piled up a massive net short US dollar position of US$34.04 billion in the week ended Jan 12, the largest short position since May 2011.

Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already large bets. Derivative markets also point to some US dollar strength in the short term.

The euro dipped to a six-week low of US$1.2066. The Antipodeans were soft against the greenback with the Aussie hitting a one-week trough of US$0.7679, while the kiwi was at a three-week low of US$0.7117.

Better-than-expected Chinese economic data headed off further weakness among riskier currencies, but was not enough to shift currency traders' mood decisively. REUTERS