US dollar softens against most majors

London

THE US dollar held near mid-2018 lows on Monday, as bullish sentiment across global markets prompted investors to buy riskier currencies such as the Chinese yuan, despite a resurgent pandemic.

Low US interest rates, massive US budget and trade deficits and a belief that rebounding world trade will drive non-dollar currencies higher have set the US dollar on a downward course.

"The US dollar slipped further through the threshold of the new year as global risk sentiment stayed buoyant", said Alvin Tan, an FX strategist at RBC Capital Markets.

The dollar index posted its first annual loss since 2017 last year. It has fallen roughly 13 per cent from a three-year peak at the height of the pandemic panic in March.

It was last 0.14 per cent weaker at 89.640 and not far above last week's more than two-and-a-half-year low of 89.515.

Manufacturing activity expanded in Japan, South Korea and Taiwan, showed purchasing managers' index (PMI) surveys, the latest indication that manufacturers in the region continue to recover from the damage caused by the Covid-19 pandemic last year.

The Chinese yuan rose over 0.9 per cent to a 30-month high of 6.4693 per US dollar.

Chinese factory activity continued to accelerate in December, though the PMI missed forecasts at 53.0.

The safe-haven yen rose 0.4 per cent to 102.90 per US dollar, and looked to test resistance at 102.55, after Japanese Prime Minister Yoshihide Suga said his government was mulling a state of emergency in Tokyo as coronavirus cases rise.

The softening US dollar boosted commodity prices and pushed Bitcoin, as well as several Asian currencies, to milestone highs.

The Australian and New Zealand dollars each gained close to 0.4 per cent to hold just below multi-year peaks.

The euro, which had dipped on New Year's Eve profit-taking, rose 0.4 per cent to US$1.2270, while traders waited for a fresh batch of economic indicators throughout the region.

Sterling, still boosted by Britain's trade deal with the European Union, gained to US$1.3678, levels last seen in early 2018.

Bitcoin on Monday was off Sunday's record high of US$34,800 at US$32,340. An enormous rally has carried it up 800 per cent since March, as institutional investors seem to have turned buyers. REUTERS