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The euro was headed for its best week in a month on Friday and has blown past major resistance levels as investors piled into bets the U.S. dollar has further to fall while the world begins to emerge from the Covid-19 pandemic.

The common currency is up 1.5% for the week so far and last sat comfortably at $1.2145.

Having finally breached $1.2000 after multiple attempts, momentum funds have surged in to long positions. The next serious chart resistance level is not until $1.2555.

“The euro is holding above the $1.21 level for the first time since spring 2018, despite the fact that there is only a week to go before the European Central Bank is expected to add more policy stimulus,” said Rabobank strategist Jane Foley.

“There is no doubt that the actions of the Federal Reserve have been hugely successful at weakening the value of the dollar since the spring this year.”

The euro is also set for its best week against the Japanese yen in six months, even though the yen rose a little against a broadly weaker dollar on Thursday.

The yen was steady against the dollar on Friday, sterling held near a one-year peak and other majors eased a fraction, while Asian currencies advanced.

Investors have turned heavily short dollars in recent months, figuring rates will stay low for a long time in the United States forcing yield-seekers to head elsewhere for better returns.

Even worries about a painful winter of deaths and lockdowns in the United States has failed to drive too much safe-haven demand for dollars, as investors reckon on more government support – either in the form monetary easing or fiscal spending.

Against a basket of currencies the dollar has shed about 12% from a three-year high of 102.990 in March, to hit a two-and-a-half year low of 90.504 on Thursday and held near that level on Friday.

“No point standing in the way of dollar weakness for now, especially while risk-on sentiment is still extending,” said OCBC Bank strategist Terence Wu.
Flow riders

Besides the euro, trade-exposed currencies in Asia have also surged over recent weeks as optimism about the region’s recovery gathering pace – especially with vaccines on the horizon drives flows in to assets from Seoul to Sydney and Singapore.

The Chinese yuan, an increasingly popular vehicle for investors to bet against the dollar, made a 29-month high of 6.5358 per dollar.

The South Korean won rose 0.7% to its strongest since mid 2018 as foreign inflows sent the Kospi equities index to a record high some 90% above its March lows.

The Australian and New Zealand dollars backed away slightly after hitting more than two-year highs on Thursday. The Aussie was last down 0.2% at $0.7427 and the kiwi softer by the same margin at $0.7061.

They are both on track for a fifth consecutive week of gains, a streak that has lifted the kiwi most of all and raised it some 8.6% above late-September lows.

Later on Friday, investors are looking to U.S. jobs figures due for the latest signs of the recovery losing momentum, while the fate of the pound is largely in the lap of Brexit trade deal negotiators who remain locked in talks.

“Traders need to assess their sterling exposures into the weekend,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“If I were running long exposures, I wouldn’t be adding … but questioning, if we see a deal, how punchy the gapping risk will be,” he said. “If we don’t get a deal and the rhetoric from (EU negotiator Michel) Barnier or the British camp shows limited progress then we could see GBP/USD gap lower on Monday.”

The dollar slid to a 2-1/2-year low against a basket of major currencies on Thursday as investors wagered that more economic stimulus from Washington and the expected start of Covid-19 vaccinations would support riskier assets.

While U.S. legislators have failed to reach agreement on fresh relief for a pandemic-hit U.S. economy, there were early signs that a $908 billion bipartisan proposal could be gaining traction.

Investors expect lawmakers to reach a deal eventually with the two parties also facing a Dec. 11 deadline to pass a $1.4 trillion budget or risk a shutdown of the government.

Britain on Wednesday approved a Covid-19 vaccine developed by Pfizer and BioNTech and said it would start vaccinating those most at risk early next week.

“Britain is starting vaccination and the U.S. is also expected to do so in coming weeks while coronavirus infections appeared to have peaked in Europe and the same could be said for the U.S. as well,” said Yujiro Goto, chief strategist at Nomura Securities.

“All of these are easing worries about the economic recovery losing steam.”

That optimism more than offset disappointing U.S. jobs numbers for November and helped boost the euro despite widespread expectations the European Central Bank will enhance its quantitative easing next week.

The common currency ticked up slightly to $1.2119, touching its loftiest level since late April 2018.

The dollar index slipped to 2 1/2-year low of 90.948 and last stood at 90.992.

“On the whole, the new U.S. economic team under President Biden will be dovish, if not directly pursing a weaker dollar per se,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

“The next target for the euro should be its February 2018 peak of $1.2555.

When the ECB eases its policy next week as expected, I bet the euro will gain rather than fall,” he added.

The U.S. currency was on the back foot against most other currencies, apart from the safe-haven yen, against which the dollar held firmer at 104.47 yen.

The Australian dollar traded at $0.7409, having hit a 26-month high in the previous session after data showed Australia’s economy rebounded more than expected in the third quarter.

The offshore Chinese yuan changed hands at 6.5478 per dollar, near its 2-1/2-year high touched last month, maintaining strength on expectations a Biden White House would be more conducive for China’s economic growth.

The British pound held near a three-month high, last traded flat at $1.3387 after a choppy Wednesday trade as markets looked to whether Britain and the European Union can clinch a trade deal.

The negotiators may have enough progress to agree on a deal in the next few days, the BBC’s political editor said, giving the pound a slight lift.

The EU’s chief Brexit negotiator told member states’ envoys on Wednesday negotiations were reaching “a make-or-break moment”, and they urged him not to be rushed into an unsatisfactory agreement.

Four diplomats told Reuters after a briefing by Michel Barnier the talks remained snagged on fishing rights in British waters, ensuring fair competition guarantees and ways to solve future disputes.

As traders also brace for a make-or-break moment, the pound’s implied volatilities have risen. Both the overnight and one-month volatilities have hit one-month highs, an indication investors expect choppy trade.

Bitcoin dipped 1.0% to $19,043, but stayed near its record high of $19,918 hit earlier this week.

The dollar stayed near a 2 1/2-year low on Wednesday as investors cautiously eyed developments in talks about further fiscal stimulus from the United States, while risk currencies held onto gains on improving risk appetite.

Against major currencies, the dollar index fell 0.7% to 91.318, having hit its lowest level since late April 2018 of 91.263 overnight.

The Euro and the Kiwi steadied after an overnight jump to their 2 1/2-year highs as the dollar broadly weakened.

U.S. Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi held stimulus talks for the first time since the election, while a bipartisan group of senators and House members proposed $908 billion worth of coronavirus relief measures.

Pelosi said in a statement after the talks that Mnuchin would review coronavirus relief proposals.

U.S. Senate leader Mitch McConnell said on Tuesday that Congress should include a fresh wave of coronavirus stimulus in a must-pass $1.4 trillion spending bill aimed at heading off a government shutdown in the midst of a pandemic.

“The currency market is skeptical whether these proposals could be agreed in a swift manner, since hopes were shattered once already when a stimulus package didn’t come into fruition before the presidential election,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Traders are closely eyeing for convincing clues that the agreement is actually reached,” he said.

Also weighing the safe-haven dollar was weaker-than-expected U.S. manufacturing activity data and speculation that the Federal Reserve will act to support the economy before vaccinations become available.

Fed Chair Jerome Powell and Mnuchin urged Congress to provide more help for small businesses amid a surging coronavirus pandemic and concern that relief from a vaccine may not arrive in time to keep them from failing.

The Fed meets to set policy on Dec. 15-16.

The euro held ground against the dollar after its strong performance overnight as it hit the highest level since May 2018. It last fetched $1.2067.

Analysts said the European Central Bank could act against a rapid rise of the currency.

Sterling also remained near a three-month peak against the greenback after Times Radio said Brexit trade deal talks have entered the “tunnel” stage of negotiations.

Separately, a senior British minister said on Tuesday there was still a chance of a no-trade deal Brexit as talks with the European Union had snagged on fishing, governance rules and dispute resolution.

The pound was little changed at $1.3421.

The risk-sensitive Aussie firmed to 0.7389 per dollar after the Australian GDP data was released, while the New Zealand dollar changed hands at $0.7071, holding steady near the highest level since April 2018 hit overnight.

Bitcoin rose to 0.3% at $18,833.63 after hitting a record high just under $20,000 on Tuesday.

The dollar touched a more than two-year low on Monday and is set to log its largest monthly fall since July as a combination of vaccine optimism and bets on more monetary easing in the United States drove investors out of the world’s reserve currency.

Against a basket of currencies, the greenback slipped 0.1% to 91.707, its lowest since April 2018. The risk-sensitive New Zealand dollar hit a two-and-a-half year high and is headed for its best monthly percentage gain in seven years.

“The themes remain familiar: broad dollar weakness amid improving risk appetite,” ANZ Bank analysts said in a note.

“This sentiment is likely to continue into December and the (U.S. Federal Reserve) meeting, at which some further action is likely, given the near-term virus risks in the United States.”

The euro and Australian dollar each rose slightly to hit three-month peaks, though moves were small as world stocks took a breather at the end of the biggest calendar month rally on record.

The Aussie is up more than 5% for the month, the kiwi 6.3% and the euro 2.8%.

Sterling stood at $1.3325 and is up nearly 3% on the dollar this month as investors wager a Brexit deal will be brokered even as the deadline for talks loomed ever larger.

The dollar index has dropped about 2.5% in November as promising trial results for major vaccine candidates excited investors about an eventual end to the coronavirus pandemic. It is nearly 11% below a March peak of 102.990.

Nervousness about a wave of new infections across Europe and the United States and fresh lockdowns have provided some support to safe-haven currencies and a slight brake on the dropping dollar.

However, as the drawn-out U.S. election has distracted lawmakers from passing any sort of fiscal spending package, investors have begun to expect that the Fed will step in, probably with more bond buying, when it next meets in December.

Testimony from Fed chair Jerome Powell before Congress on Tuesday and Wednesday, as well as U.S. labor market data this week will be closely watched for clues as to the central bank’s thinking and the broad shape of the economy recovery.

The Japanese yen was 0.3% firmer at 103.87 per dollar on Monday and has gained a little over half a percent through November as the death toll from the pandemic climbed towards 1.5 million people.

“The dollar is gently drifting to the lows of the year as investors re-allocate portfolios to recovery trades in the rest of the world,” ING strategists Chris Turner and Francesco Pesole said in a note to clients.

“While more lockdown restrictions may stand to curb U.S. equity markets, the prospect of the Fed being prepared to add more liquidity should limit any dollar upside. And given that the dollar index has fallen in seven of the last ten Decembers, we do favor gentle dollar downside into the end of the year.”

November also marks a sixth consecutive monthly gain for the Chinese yuan, which has soared some 9% from a low in May.

That equals a similar run of monthly gains six years ago, but it is far larger in magnitude as global capital flows in to ride China’s remarkable coronavirus recovery.

Month-end dollar demand weighed on the Chinese currency on Monday, offsetting another month of strong economic data, and the yuan fell 0.2% to 6.5851 per dollar.

The greenback was broadly steady elsewhere, although bitcoin advanced 2% to $18,557. It is up 34% this month, its largest monthly gain since April.

Later in the day, investors are awaiting European inflation data and, at 1030 GMT, a speech from European Central Bank President Christine Lagarde.

The U.S. dollar index was steady at 92.03 against a basket of major currencies, treading water around a near three-month low of 91.84 it hit overnight.

The dollar has been under pressure this week, as riskier currencies benefited from increased optimism over a string of Covid-19 vaccines news reports and hopes for a more stable period in U.S. politics.

While the greenback will remain under pressure in near term due to prolonged “risk-on” sentiment led by vaccine hopes, Barclay’s Kadota said the market expects the currency to firm in mid-term.

“When looking at how economies have rebounded in the July quarter, the United States grew and made a strong rebound. In a scenario where vaccines becomes gradually available next year and economies return to normal, the U.S. will probably be one of the most resilient among developed countries. And I think that will create a dollar-favorable environment,” he said.

Dovish messaging from the European Central Bank’s chief economist and the minutes from last month’s meeting provided further confirmation of widely expected stimulus at its December gathering.

The central bank’s minutes from its October meeting showed policymakers agreed they could not afford to seem complacent during the second wave of the coronavirus, opting instead to lay the groundwork for more stimulus.

The ECB’s chief economist Philip Lane had also warned that tolerating “a longer phase of even lower inflation” would hurt consumption and investment as well as cementing expectations for low price growth in the future.

The euro was little changed against the greenback at $1.1905, away from a more than two months-high of $1.1941 it marked on Thursday.

Sterling fetched $1.3349, trading near a three-month high of $1.3399 it touched on Thursday, as market participants look for progress on Brexit talks.

The European Union chief negotiator Michel Barnier will talk on Friday with some of the bloc’s ministers responsible for fisheries to discuss the state of play in the trade discussions with Britain, EU official said.

The Australian dollar firmed at 0.73605, having climbed to a near three-month high of 0.7374 on Thursday.

Meanwhile, the kiwi changed hands at 0.7006 against the greenback.

Bitcoin, the most popular cryptocurrency, last fetched $17,271.86 in a volatile trade. Overnight, the cryptocurrency plunged as much as 13% to its lowest since Nov. 16, having rallied close to its all-time high of $19,666.

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 its volatile price swings, 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’s declines are likely to continue because a vaccine and the expected choice of former Federal Reserve Chair Janet Yellen as U.S. President-elect Joe Biden’s next Treasury secretary relieve two big uncertainties for investors.

“Rising yields may lend the dollar some support, but the overall direction is it will head lower,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“The trend has shifted to favor risk assets. Yellen will team up with the Fed and support the economy. U.S. rates will remain low for a long time.”

The dollar stood at $1.1901 against the euro on Wednesday in Asia, close to a two-week low.

The British pound bought $1.3363, close to the highest in more than two months.

Against the yen, the dollar held steady at 104.48.

Research suggesting that a Covid-19 vaccine could be available before year end has sent U.S. stocks surging to record highs and reduced the appeal of holding the dollar as a safe-harbor currency.

Risk appetite has also improved after the outgoing U.S. President Donald Trump’s administration began cooperating with the Biden transition, and after reports that Yellen, an advocate of more fiscal spending, will take the top job at Treasury.

The dollar index, pitting the dollar against a basket of six major currencies was at 92.129 after falling 0.4% on Tuesday.

The Antipodean currencies were already on the front foot as investors unwound bets for additional monetary easing in both countries.

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 5.6% so far this month, is trading just shy of its strongest since June 2018.

Bitcoin, the most popular cryptocurrency, edged up to $19,189, approaching its record of $19,666 from December 2017.