The U.S. 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 U.S. interest rates, massive U.S. budget and trade deficits and a belief that rebounding world trade will drive non-dollar currencies higher have set the dollar on a downward course.
“The U.S. 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 los9s since 2017 last year. It has fallen roughly 13% from a three-year peak at the height of the pandemic panic in March.
It was last 0.14% 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, according to 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% to a 30-month high of 6.4693 per dollar.
Chinese factory activity continued to accelerate in December, though the PMI missed forecasts at 53.0.
The safe-haven yen rose 0.4% to 102.90 per 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 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% to hold just below multi-year peaks.
The euro, which had dipped on New Year’s Eve profit-taking, rose 0.4% to $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 $1.3678, levels last seen in early 2018.
Investors are now focused on a runoff election in the U.S. state of Georgia on Tuesday that will determine control of the Senate.
Jeffrey Halley, a market analyst at Oanda warned his clients against sharp moves in the dollar after that election.
“A Democrat win is likely to see a sharp correction higher by the US Dollar, exacerbated by the world being universally short the greenback”, he said. “Investors should probably wait for the election dust to settle before committing heavily to new dollar short positions.
Minutes of the Federal Reserve’s December meeting due on Wednesday should offer more detail on discussions about making the Fed’s forward policy guidance more explicit and the chance of a further increase in asset buying this year.
The data calendar includes manufacturing surveys across the globe, which will show how industry is coping with the spread of the coronavirus, and the closely watched ISM surveys of U.S. factories and services.
Bitcoin on Monday was off Sunday’s record high of $34,800 at $32,340. An enormous rally has carried it up 800% since March as institutional investors seem to have turned buyers.
Reporting by Tom Westbrook; editing by Lincoln Feast, Larry King