US dollar index resumes decline amid rising hopes

London

A REBOUND in global market sentiment put new momentum behind the US dollar decline on Monday, while riskier currencies strengthened, as optimism about US President Joe Biden's stimulus plans took precedence over the impact of Covid-19.

Market sentiment had turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the virus hurt business activity, dragging stocks lower.

The mood picked up on Monday, however, lessening demand for the safe-haven US dollar. The dollar index fell overnight and was down 0.2 per cent at 90.094 at 7.58am GMT.

Analysts expect a broad greenback decline during 2021. The net speculative short position on the dollar grew to its largest in ten years in the week to Jan 19, showed weekly futures data from the Commodity Futures Trading Commission released on Friday.

The US Federal Reserve meets on Wednesday, and its chair Jerome Powell is expected to signal that he has no plans to wind back the Fed's massive stimulus any time soon - news which could push the dollar down further.

"The process of tapering quantitative easing is likely to be a gradual process which could last throughout 2022, and then potentially be followed by the first rate hikes later in 2023," wrote MUFG currency analyst Lee Hardman. "In these circumstances, we continue to believe that it is premature to expect the US dollar to rebound now in anticipation of policy tightening ahead, and still see scope for further weakness this year."

In a phone call on Sunday with Republican and Democrat lawmakers, officials in President Biden's administration tried to head off Republican concerns that the US$1.9 trillion stimulus proposal - hopes for which have lifted market sentiment since the US elections last year - was too expensive. Lawmakers from both parties said they had agreed that getting the Covid-19 vaccine to Americans should be a priority, but some Republicans objected to such a hefty package only a month after Congress passed a US$900 billion relief measure.

The euro was flat against the dollar, at US$1.2174. At the European Central Bank meeting last week, president Christine Lagarde said the bank was closely watching the euro. The euro surged 9 per cent last year versus the US dollar and reached new two-and-a-half year highs earlier in January. Despite this verbal intervention, traders remain bullish on the euro, expecting the bar for a rate cut to be high. REUTERS