December 21, 2020
By Kevin Buckland
TOKYO (Reuters) – The dollar climbed against its major peers on Monday with investors rushing for its relative safety as many countries tightened COVID-19 lockdowns.
Sterling was on track for its biggest drop in three months against the dollar after Britain imposed tough new curbs to stem a fast-spreading new coronavirus strain.
The currency also came under pressure as Brexit negotiators failed to find an agreement on the weekend, raising the risk of Britain crashing out of the European Union at the turn of the year with no deal.
The negative sentiment overshadowed an agreement among U.S. congressional leaders for a $900 billion coronavirus aid package.
The pound lost 1.14% to $1.3336. The euro slid 0.6% to $1.21860.
The riskier Aussie and kiwi dollars dropped 0.7% to trade at 75.672 and 70.88 U.S. cents, respectively. The Mexican peso sank 1.1% to 20.1524 per dollar.
“The lockdown news and the stalemate on Brexit is keeping the market nervous,” said Rodrigo Catril, National Australia Bank’s senior currency strategist in Sydney. “Dollar strength is largely being driven by the move lower in the pound.”
The dollar’s rebound comes after it sank to 2-1/2-year lows against major peers last week, driven by optimism that a widening vaccine rollout would revive global growth.
The dollar index rose 0.2% to 90.461, after dipping to 89.723 on Thursday for the first time since April 2018.
“The dollar had been continuously sold off against a risk-on backdrop, and part of that was expectations of U.S. fiscal stimulus,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
“Now that has been largely agreed, we’re seeing a classic case of ‘buy the rumour, sell the fact’, and dollar shorts are being unwound.”
The greenback gained 0.1% to 103.410 yen, another traditional safe haven.
The dollar rose 0.2% to 6.5346 Chinese yuan in the offshore market, the biggest advance in almost a month. It traded at 6.5505 yuan in the onshore market.
Several European countries began closing their doors to travellers from Britain on Sunday amid alarm about the new coronavirus strain, compounding the uncertainty around trade come Jan. 1.
The EU’s fishing rights in British waters continues to be a particular sticking point in Brexit negotiations. British Health Minister Matt Hancock said on Sunday that the bloc should drop its “unreasonable demands”.
Even so, the mood could shift quickly, NAB’s Catril warned, forecasting the pound could climb to $1.50 next year if a last-minute Brexit agreement gets done.
“We still can’t get our heads around the fact that a trade deal will collapse because of fisheries,” he said.
“Overall I would say that risk positivity driven by vaccines and stimulus, plus the fact that fiscal stimulus needs to be funded by a lot of borrowing in the U.S., still paints a picture of dollar weakness for 2021.”
Currency bid prices at 12:47PM (347 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar $1.2186 $1.2260 -0.60% +8.70% +1.2243 +1.2178
Dollar/Yen 103.3920 103.3200 +0.07% -4.81% +103.4850 +103.2950
Euro/Yen 126.00 126.61 -0.48% +3.32% +126.6300 +125.9200
Dollar/Swiss 0.8865 0.8832 +0.39% -8.38% +0.8866 +0.8843
Sterling/Dollar 1.3350 1.3528 -1.30% +0.67% +1.3466 +1.3337
Dollar/Canadian 1.2849 1.2788 +0.49% -1.08% +1.2853 +1.2784
Aussie/Dollar 0.7569 0.7624 -0.69% +7.91% +0.7605 +0.7565
NZ 0.7092 0.7142 -0.71% +5.38% +0.7121 +0.7086
Tokyo Forex market info from BOJ
(Reporting by Kevin Buckland; Editing by Stephen Coates and Himani Sarkar)
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