US dollar retreats as risk appetite swells

London

THE US dollar fell to its lowest in over two years against major currencies on Thursday after the Federal Reserve stuck to its current policy guns while hopes for more US stimulus and a post-Brexit trade deal boosted appetite for riskier currencies.

Congressional negotiators were closing in on a US$900 billion Covid-19 aid bill in the US, said lawmakers and aides, boosting stock markets across the globe.

The US dollar index continued to retreat during morning trading in Europe, falling at one point to a new low of 89.867 against a basket of currencies after breaking below 90 for the first time since April 2018.

"While we expect stocks to benefit further from positive news on vaccine rollouts and US fiscal support, the same cannot be said for the US dollar," said Mark Haefele, chief investment officer at UBS GWM. "Safe-haven demand for the dollar is being eroded by a broadening global recovery."

The Fed on Wednesday said it would keep funnelling cash into financial markets until the US economic recovery is secure. The promise of long-term help fell short of some investors' hopes of an immediate move.

The US dollar index rose after the Fed's announcement, but the respite was short-lived. Meanwhile, optimism the European Union (EU) and the UK will finally reach a post-Brexit trade deal boosted the pound, which rose to US$1.3615, its highest level since May 2018. EU Brexit negotiator Michel Barnier reported "good progress" in the talks but cautioned "last stumbling blocks" stood in the way of sealing a new trade pact.

The pound did not make any significant moves and kept trading above US$1.36 after the Bank of England kept its stimulus programme unchanged as it awaited for the outcome of the Brexit trade talks. The euro traded as high as US$1.2244, its highest since April 2018, before giving up some of its gains.

The Swiss franc also gained against the greenback and hit a six-year high of US$0.8823 after the Swiss National Bank (SNB) stuck to its readiness to intervene in currency markets despite being labelled a currency manipulator by the US. The US Treasury said that until June 2020, both Switzerland and Vietnam had intervened in currency markets to prevent effective balance of payments adjustments.

Analysts expect the SNB to remain undeterred by US pressure and plough ahead with currency purchases. REUTERS