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The dollar edged higher on Friday, heading for a weekly gain, as lingering jitters about a coordinated assault on hedge fund short positions in the United States boosted demand for safe-haven assets.

The greenback has benefited from safety buying since the start of the week, when investors fretted that President Joe Biden’s fiscal spending package will not be as large as the proposed $1.9 trillion.

At the same time, Covid-19 vaccine rollouts globally have been running into trouble. In Europe, production delays have snowballed into a spat between the European Union and drugmakers over how best to direct the limited supplies available.

“The caution in the market’s mind hasn’t gone away,” said Shusuke Yamada, a currency strategist at Bank of America in Tokyo. “The dollar and other haven currencies will see some demand for the time being.”

“The more medium-term question is what U.S. fiscal policy will do to U.S. interest rates, Fed policy, and therefore the U.S. dollar,” he added.

The dollar index gained 0.2% to 90.757 in the Asian day, bringing its weekly rise to 0.6%.

The greenback advanced 0.3% to 104.52 yen, another traditional safe-haven, adding to the previous day’s gains of about 0.2%.

The euro declined 0.2% to $1.20955.

The U.S. currency, as measured by the dollar index, has broadly rebounded since dipping to three-year lows at the start of this month on the view that last year’s decline ran too far too fast.

However, many analysts expect the greenback to return to the downward trend that saw it lose nearly 7% of its value last year as the new U.S. government implements massive fiscal spending while the Federal Reserve maintains its ultra-easy monetary policy.

“The overall trend does reflect these supply issues around the U.S. dollar,” said Michael McCarthy, chief strategist at CMC Markets in Sydney.

“Wide expectations of that huge issuance that’s coming and the support of the Fed mean that we’re looking in the medium-term for further U.S. dollar weakness.”

The dollar was stuck on the back foot against major peers on Wednesday as markets wait on comments from Federal Reserve Chair Jerome Powell, who is likely to renew a commitment to ultra-easy policy.

The greenback held declines against riskier currencies, with pandemic recovery hopes getting a boost as the International Monetary Fund upgraded its forecast for 2021 global growth.

Treasury yields, whose rise had supported the dollar at the start of this year, declined overnight amid caution about the eventual size of and potential delays to President Joe Biden’s $1.9 trillion fiscal stimulus plan.

“The stronger the world economic outlook, the weaker the U.S. dollar,” said Joseph Capurso, currency analyst at Commonwealth Bank of Australia in Sydney.

“Powell is going to make clear that they don’t see any near-term exit from their very easy policy stance, and that’s going to pull the dollar down.”

The Fed chair is due to speak at a news conference after the central bank’s two-day policy meeting that ends Wednesday.

Earlier this month, he said in a web symposium with Princeton University that the U.S. economy is still far from the Fed’s inflation and employment goals, and it is too early to discuss altering monthly bond purchases.

The dollar index ticked up 0.1% to 90.253 on Wednesday in Asia, following a 0.2% decline the previous session.

The gauge has been consolidating since bouncing off a nearly three-year low of 89.206 at the start of the month.

The British pound climbed to its highest since May 2018 at $1.3753 before trading slightly lower at $1.3724.

The Aussie dollar slipped 0.2% to 77.30 U.S. cents, paring Tuesday’s 0.5% rally.

Traders are also keenly watching progress on the U.S. stimulus front after Senate Majority Leader Chuck Schumer said Democrats may try to pass much of the President’s massive spending package with a majority vote, but it is not clear if they have the numbers to override Republican objections.

“We’ve had a lot of speculation recently that the Biden stimulus package won’t be negative for the dollar at all, in fact it will be a positive thing just on the basis that it should lead to U.S. economic outperformance,” said Kyle Rodda, a markets analyst at IG Markets.

“But I think if you look at more of the trends in the market at the moment, and we go back to the business cycle, we’re really only at the beginning of this uptick in the global recovery, and a necessary ingredient of that is a weaker dollar.”

The greenback gained 0.1% to 103.72 yen following a similar-sized decline overnight.

The euro was mostly flat at $1.2153 after rising around 0.1% in the previous session.

A rebound in global market sentiment put new momentum behind the dollar decline on Monday, while riskier currencies strengthened, as optimism about U.S. President Joe Biden’s stimulus plans took precedence over the impact of COVID-19.

Market sentiment had turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the virus hurt business activity, dragging stocks lower.

The mood picked up on Monday, however, lessening demand for the safe-haven U.S. dollar. The dollar index fell overnight and was down 0.2% at 90.094.

Analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in ten years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Fed Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

“The process of tapering QE is likely to be a gradual process which could last throughout 2022, and then potentially be followed by the first rate hikes later in 2023,” wrote MUFG currency analyst Lee Hardman.

“In these circumstances, we continue to believe that it is premature to expect the US dollar to rebound now in anticipation of policy tightening ahead, and still see scope for further weakness this year,” he said.

In a phone call on Sunday with Republican and Democrat lawmakers, officials in President Biden’s administration tried to head off Republican concerns that the $1.9 trillion stimulus proposal — hopes for which have lifted market sentiment since the U.S. elections last year — was too expensive.

RELIEF MEASURE
Lawmakers from both parties said they had agreed that getting the COVID-19 vaccine to Americans should be a priority, but some Republicans objected to such a hefty package only a month after Congress passed a $900 billion relief measure.

The euro was flat against the dollar, at $1.2174. At the European Central Bank meeting last week, President Christine Lagarde said the bank was closely watching the euro. The euro surged 9% last year versus the dollar and reached new two and a half year highs earlier in January.

But despite this verbal intervention, traders remain bullish on the euro, expecting the bar for a rate cut to be high.

Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, wrote in a note to clients that in the short term the threshold for a rate cut is high and in the long term more than one or two cuts would be impossible.

“Things are more complicated medium-term,” he said. “Even if the ECB does not want to cut interest rates: if the euro were to become so strong, we cannot be certain that it might not tweak interest rates after all.”

Elsewhere, the Australian dollar, which is seen as a liquid proxy for risk, was up 0.2% at 0.773 versus the U.S. dollar at 0822 GMT.

Australia approved the Pfizer-BioNTech COVID-19 vaccine for use but warned AstraZeneca’s international production problems mean the country would need to distribute a locally manufactured shot earlier than planned.

The New Zealand dollar was up 0.4%, while the commodity-driven Norwegian crown was up 0.3% versus both dollar and euro .

The safe-haven Japanese yen was flat on the day at 103.735 versus the U.S. dollar.

The Swiss franc lost out slightly versus the euro, with the pair changing hands at 1.0786 at 0829 GMT.

The dollar was headed for its worst week of the year on Friday, as investors cheered in the Joe Biden administration by buying riskier currencies and refreshed bets that a pandemic recovery could push the greenback lower still.

Against the euro, the dollar is down almost 0.8% this week and it touched a week-low of $1.2173 per euro on Friday. The dollar index has fallen by the same weekly margin, and was steady at 90.075 early in the Asia session.

The euro had found some support from the European Central Bank keeping policy steady and accommodative.

Scandinavian currencies have led the charge higher, with the Norwegian crown up 1.8% for the week, helped by Norges Bank’s decision to hold its policy rate steady, albeit at zero. The Swedish crown is up 1.4% for the week.

The risk-sensitive Antipodean currencies have also been gainers, with the Australian dollar up 0.8% and the kiwi climbing more than 1% over the week so far.

Sterling rose to a 2-1/2 year high of $1.3745 overnight on hopes Britain’s vaccine roll-out can usher in a rebound in growth. It held at that level on Friday, up 1% for the week.

The sentiment-driven moves have eroded gains made by the U.S dollar since the Democrats won control of the U.S. Congress earlier this month. The dollar had risen along with U.S. Treasury yields on expectations of more fiscal stimulus and government borrowing under a Biden administration.

“It’s pretty hard to run away from the enduring strong negative correlation between U.S. equity performance and the U.S. dollar,” said Ray Attrill, head of FX strategy at National Australia Bank, as stock market sentiment spills over.

“I think the market is far happier focusing on the potential positives of the Biden administration’s proposed fiscal plans…rather than any of the negatives,” he said.

“For the time being, while it seems to be onwards and upwards for stocks, it’s put the dollar back on the back foot.”

The dollar was steady against the Japanese yen on Friday at 103.58, but has lost 0.3% over the week.

A heavy sell-off in Bitcoin saw the cryptocurrency drop 5% in Asia trade on Friday to hit an almost three-week low of $28,800.

Later on Friday, preliminary purchasing managers’ index figures are due across Europe and the United States, and weakness is expected as fresh waves of coronavirus infection have driven new lockdowns and curtailed growth.

The dollar held losses versus most major peers on Thursday as optimism that a massive U.S. stimulus package under the new Joe Biden administration will bolster growth sapped demand for safe-haven currencies.

Riskier commodity currencies remained higher after U.S. stocks rose to new records overnight as Biden, who has laid out plans for a $1.9 trillion pandemic relief package, was sworn in as President.

The dollar tumbled to a three-year low against its Canadian counterpart on Wednesday after the Bank of Canada opted not to cut interest rates.

“Risk sentiment is quite positive right now and we expect it to remain so this year, with growth expected to rebound quite strongly,” said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.

The Canadian dollar and Norwegian crown are likely to outperform, while European currencies lag, he said.

The greenback should also strengthen this year as the United States recovers faster than most other countries, he added.

The U.S. currency slipped 0.1% to C$1.2623 in early Asian trading, declining for a third day and touching a three-year low at C$1.2607 overnight.

The dollar slid 0.2% to 8.48 Norwegian crowns, also a third day of declines.

The Aussie dollar rose 0.1% to 77.505 U.S. cents, adding to a 0.7% rally in the previous session. Australia boasted another solid rise in employment in December, data released Thursday showed.

Biden was sworn in as the 46th president of the United States on Wednesday, vowing to end the “uncivil war” in a deeply divided country reeling from a battered economy and a raging coronavirus pandemic that has killed more than 400,000 Americans.

North of the border, the Bank of Canada said Wednesday that the arrival of a COVID-19 vaccine and stronger foreign demand is brightening the economic outlook in the medium term, opting to hold its key overnight interest rate at 0.25%. Money markets had been watching the prospect of a so-called micro rate cut of less than 25 basis points.

The Japanese and European central banks decide on policy Thursday, with no change expected.

The dollar was mostly flat at 103.59 yen on Thursday, another safe haven currency, after sliding to a two-week low of 103.45 overnight.

The euro gained 0.2%, reversing a similar decline from the previous session, to trade at $1.21245.

European countries are struggling to contain the novel coronavirus amid worries that a new variant could lead to more stringent lockdowns and more economic pain.

The dollar index slipped 0.1% to 90.335, after closing almost unchanged on Wednesday.

The dollar slipped from close to its highest in nearly one month on Tuesday as caution set in before U.S. Treasury Secretary nominee Janet Yellen testifies later, with traders keeping a close eye on the policies of the incoming Joe Biden government.

The greenback weakened against most major peers as stocks in Asia rallied, lifting risk sentiment and curbing demand for safe-haven currencies like the dollar and Japanese yen.

The dollar index slipped about 0.1% to 90.708 in the Asian session, a day before U.S. President-elect Joe Biden is set to be inaugurated.

On Monday, the gauge ended 0.1% lower after earlier climbing to 90.94 for the first time since Dec. 21, as the Wall Street Journal reported Yellen will affirm a more traditional commitment to market-set currency rates in a Senate testimony on Tuesday.

That’s in stark contrast to outgoing President Donald Trump, who often railed against dollar strength.

The greenback has started the year with a near 2% rally against major peers, supported by a rise U.S. Treasury yields in response to Biden’s plan for a $1.9 trillion pandemic relief package.

The dollar fell close to 7% last year on expectations U.S. monetary policy would stay ultra-loose and amid hopes for a post-pandemic global recovery.

Many analysts expect the dollar to resume its march lower this year.

“We’ve seen comments from Janet Yellen that she won’t be pursuing a weak dollar policy per se, but that doesn’t mean that the overall impact of Fed policy won’t keep the dollar weakening,” said Michael McCarthy, chief strategist at broker CMC Markets in Sydney.

“I suspect what we’ve been seeing in the dollar at the moment is a minor corrective rally in an overall downtrend.”

The greenback has also been supported recently by an unwinding of bearish bets, with data showing that hedge funds piled up the biggest net short position since May 2011 in the week ended Jan. 12. Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already big bets.

The euro rose 0.2% to $1.2095, after dipping to $1.2054 for the first time since Dec. 2 on Monday, in subdued trading with U.S. markets closed for Martin Luther King Jr. Day.

The riskier Aussie dollar rose 0.3% to 77.082 U.S. cents, reversing a decline of more than 0.2% overnight.

The dollar gained 0.3% to 104.05 yen, although still consolidating in a narrow range after reaching a one-month high of 104.40 last week.

The dollar clung to gains on Monday and the Japanese yen edged higher as softening U.S. economic data and rising global coronavirus cases kept investors cautious, while lockdowns and Italian political turmoil held the euro under pressure.

The euro dipped to a six-week low of $1.2066 in Asia and fell to a one-month low of 125.20 yen. The yen was last up about 0.2% at 103.70 per dollar and it also rose on the risk-sensitive Australian and New Zealand dollars.

The Antipodeans were soft against the greenback and the Aussie touched a one-week trough of $0.7679, while the kiwi hit a three-week low of $0.7117.

Better-than-expected Chinese economic data headed off further selling, but was not enough to shift currency traders’ mood.

The safety bid has added another layer of support for the dollar since the Democrats won control of U.S. Congress a fortnight ago, which triggered a surge in yields as investors priced in bigger stimulus from a borrow-and-spend Biden administration.

The mood soured after Friday data showed U.S. retail sales fell for a third straight month in December, stoking worries that the recovery is running into trouble as health authorities warned that the worst of the latest Covid-19 wave might be yet to come.

Europe is also facing surging cases and an Italian government that must survive crucial votes in parliament on Monday and Tuesday in order to cling to power.

The dollar index steadied after touching a one-month high and last traded at 90.827. Sterling on Monday sat near at a one-week low of $1.3567.

Nevertheless, many investors appear to be sticking in crowded dollar shorts, which hit an almost 10-year high last week, even though the bounce has carried the dollar index about 1.9% higher and pushed the euro more than 2% lower in two weeks.

“The market is in a bit of a wait and see mode debating about the dollar, in terms of whether higher U.S. yields could provide support or whether we see further decline,” said Bank of Singapore currency analyst Moh Siong Sim.

“I think the balance of risks is still in favor of a reflationary environment, and therefore risk sentiment should stay positive and we should see a further dollar decline.”

Elsewhere, the Canadian dollar slipped 0.2% after reports that Joe Biden plans to soon rescind permission for the Keystone XL pipeline, a project which would link oil sands in Alberta to refineries in Texas.

Later in the week, President-elect Biden is due to be inaugurated in a heavily-guarded Washington. Tensions are high after mob violence a few weeks ago.

Biden’s pick for Treasury Secretary, Janet Yellen, is expected to rule out seeking a weaker dollar when testifying on Capital Hill on Tuesday, the Wall Street Journal reported.

The dollar’s rebound from a nearly three-year low faltered after Federal Reserve Chair Jerome Powell said on Thursday that interest rates would not rise any time soon.

The release of details of President-elect Joe Biden’s $1.9 trillion stimulus later that day failed to give the greenback additional support, with the main points of the plan already reported by the media.

Bitcoin continued to recover after a nearly $12,000 plunge from the record $42,000 reached last week, briefly topping $40,000 overnight.

The dollar index has rallied after reaching its lowest level since March 2018 last week, as the prospect of more stimulus weighed on U.S. government bonds, sending the benchmark 10-year Treasury yield above 1% for the first time since March.

Although many analysts predict the greenback will resume the decline that saw it slide almost 7% last year versus major peers as the global economy recovers from the pandemic, there is growing concern that the rise in yields will temper that weakness.

The dollar index was little changed at 90.26 after drifting slightly lower overnight. It rebounded to as high as 90.73 at the start of this week from as low as 89.206 on Jan. 6.

Powell said in a live-streamed interview with a Princeton University professor that the economy remains far from where the Fed wants it to be, and that he sees no reason to alter its highly accommodative stance “until the job is well and truly done.”

The central bank’s asset-buying program has weighed on the dollar as it increases supply of the currency, diminishing its value.

“Shorter term, Powell just put a lid on the U.S. dollar,” said Westpac currency analyst Sean Callow.

“The baseline case is still for a substantial acceleration in the global economy, which historically has proven to be positive for most currencies against the U.S. dollar, but I think there is potential to at least have a debate over whether the U.S. dollar will be quite as weak as people expect.”

The dollar was little changed at 103.76 yen after slipping 0.1% overnight.

The euro eased 0.1% to $1.21465, on track for a three-day decline.

The riskier Aussie dollar slid 0.1% to 77.650 U.S. cents, tempering the previous session’s 0.6% rise.