The dollar nursed losses on Wednesday as progress in developing a novel coronavirus vaccine and expectations for a fiscal boost from a new U.S. government triggered a shift of funds from the greenback to riskier assets.
The U.S. currency teetered near a two-month low against the Australian dollar and a two-year low against the New Zealand dollar, both considered barometers of risk sentiment due to their close ties with the global commodities trade.
Bitcoin, a cryptocurrency known for extreme volatility, also traded near an all-time high, in a further sign that investors are growing more comfortable taking on riskier positions.
The U.S. dollar is expected to continue to fall as progress on a vaccine and the expected choice of former Federal Reserve Chair Janet Yellen as the next U.S. Treasury secretary relieved two big uncertainties for investors.
“From here, the Fed will prove a mere auxiliary to maximize fiscal impact by ensuring cheap funding,” said John Hardy, head of FX strategy at Saxo Bank.
He said the Fed would do this by printing money and keeping rates low across the yield curve.
“On that note, it makes sense to have a former Fed chair helping to maximize that fiscal-monetary coordination under a Biden administration. So the long-term implications of the Yellen nomination are distinctly dollar negative,” Hardy added.
Later today, investors will be focused on the minutes from the Federal Reserve’s latest meeting.
“We don’t expect much surprise and see limited room for the minutes to tame the dollar decline. If anything, the risks are skewed to a possible surprise coming from hints at an expansion in quantitative easing in December,” said strategists at ING in a note to clients.
The dollar stood at $1.1917 against the euro on Wednesday, close to a two-week low.
The British pound bought $1.3365, close to its highest in more than two months.
Against the yen, the dollar held steady at 104.41.
Research suggesting that a COVID-19 vaccine could be available before the end of the year has sent U.S. stocks surging to record highs and reduced the appeal of holding the dollar as a safe-harbour currency.
Risk appetite has also improved after U.S. President Donald Trump’s administration began cooperating with the President-elect Joe Biden’s transition team, and after reports that Yellen, an advocate of more fiscal spending, will take the top job at the Treasury.
The dollar index, pitting the dollar against a basket of six major currencies, was at 92.012 after falling 0.4% on Tuesday. It was last down 0.1% on the day.
The onshore yuan rose to 6.5799 per dollar on hopes for better Sino-U.S. ties under Biden. Other Asian currencies also edged higher.
The Antipodean currencies, which benefited earlier as investors unwound bets for additional monetary stimulus in both countries, eased in early European trade.
Improving risk appetite means the Australian dollar’s next target is its high of $0.7413 on Sept. 1.
The New Zealand dollar, which has rallied 5.5% so far this month, is trading just shy of its strongest since June 2018.
Bitcoin, the most popular cryptocurrency, climbed to $19,221 just short of its record of $19,666 from December 2017.
Reporting by Ritvik Carvalho; additional reporting by Stanley White in Tokyo; Editing by Ana Nicolaci da Costa