LONDON (Reuters) – The dollar strengthened to a two-month high against the euro and yen, after data indicated an improvement in the U.S. economic outlook, while risk appetite in global stock markets declined .
U.S. Treasury yields struggled higher after ADP payroll data showed an increase in earnings Wednesday and ISM data showed that service industry activity in the United States rose to its highest level in nearly two years. January.
Dollar short positions are elevated, meaning the dollar has a place to rise when speculators cancel those positions.
“We are not convinced that the normal reversal of the US dollar will be stable beyond the short term,” Lee Hardman, money analyst at MUFG, wrote in a note to clients, citing a continued decline in real U.S. yields.
“In the short term, however, there is still a risk that the U.S. rebound may expand further after heavy sales at the end of last year,” he said.
“The relentless upward movement in global equity markets has lost some momentum earlier this year, creating a more supportive backdrop to the U.S. dollar in the near future. The slow roll-out of vaccines in Europe also raises some concerns that there is a risk of weakening the forecast for global recovery in 2021 and giving an attractive rise to the US dollar, ”he said. .
At 0817 GMT, the dollar was at 91.298 against a basket of currencies, up 0.2% on the day.
Bullish comments from U.S. Federal Reserve policymakers and renewed hopes for U.S. fiscal stimulus are also giving rebels new lending.
The U.S. Democratic-controlled House of Representatives on Wednesday approved a budget bill that would allow it to bypass a $ 1.9 trillion coronavirus aid plan proposed by President Joe Biden without Republican support.
The euro fell short of $ 1.20 for the first time since December 1.
“The EUR / USD still faces short-term risks, due to the position and slow pace of the EZ vaccine,” ING strategists wrote in a note.
In the UK, the focus is on a Bank of England meeting. While no changes in monetary policy are expected, investors will listen for views on the economic recovery and the outcome of the bank’s consultation on negative rates.
Businesses in Britain have been spurred by a third national lockdown and are facing post-Brexit barriers to trade with the European Union, after Britain left the bloc’s single market on 31 December.
At 0825 GMT, the pound was lower against the euro and down 0.5% against the dollar at $ 1.2580 – a 17-day low.
“For today, Sterling could benefit if the BoE maintains its critical position on negative rates. However, with Brexit in mind we continue to see downside risks for Sterling, ”commerzbank strategist You-Na Park-Heger wrote in a note.
Elsewhere, the Australian dollar rose about 0.2% at 0.76320 against the US dollar. The Norwegian crown was down about 0.3%.
The yen fell about 0.1% against the dollar at 0836 GMT, at 105.180.
Bitcoin continued to climb, touching a 20-day high. Ethereum reached its highest levels of $ 1,600.
Reporting by Elizabeth Howcroft, edited by Larry King