Demand for the safest assets decreased amid progress toward agreeing on U.S. fiscal stimulus and optimism for a Brexit deal. Hence, on Tuesday, the U.S. dollar traded close to its two and a half year lows against major currencies.
The dollar was near its weakest since mid-2018 versus the euro and sterling. Besides, U.S. lawmakers scurrying to ready $1.4 trillion in spending.
According to Westpac currency analyst Sean Callow, 2021 seems increasingly promising for global growth. The U.S. will undoubtedly be a part of that. He said that the international reflation trade would help the risk-sensitive currencies like the Australian dollar.
Callow added that he expects the greenback to be in the group of laggards, along with the likes of the yen.
The sterling increased by 0.1% against the greenback and settled at $1.3332 after surging 0.8% on Monday. Significantly, earlier this month, it hit a two and a half year high of $1.3540.
The U.S. eased 0.1% and touched $1.2150 per euro. It traded near a two and a half year low of $1.2177 and touched again on December 14.
COVID-19 roll-out buoyed risk sentiment
Additionally, coronavirus vaccine roll-outs in the United States and the United Kingdom also buoyed risk sentiment. Spikes strengthened the optimism due to virus and death rates. London will go into a tighter lockdown amid the discovery of a new variant of the disease.
The greenback index was little changed at 90.705 after Monday. There was a decline as low as 90.416, for the first time since April 2018. Meanwhile, the U.S. dollar increased by 0.1% and settled at 104.125 yen.
The roll‑out of vaccines is starting in the U.S. and the U.K. According to Joe Capurso, Commonwealth Bank of Australia currency analyst, shutdowns may reduce in frequency and intensity, which will allow the dollar to continue its downtrend. He added that an agreement on fiscal stimulus would also weaken the greenback.
The offshore and onshore yuan traded at 6.5444 and 6.5549, respectively
Furthermore, the offshore Chinese yuan declined by 0.2% and touched 6.5444 per dollar. In contrast, it saw a hit 6.4975 earlier this month for the first time since June 2018. Besides, the onshore yuan traded at 6.5549.
On December 15, a Chinese official announced that the country could make targeted policy adjustments as the economy recovers.
The Australian dollar fell by 0.2% and settled at 75.130 U.S. cents after hitting the highest since June 2018 at 75.780 on December 14.
Meanwhile, the New Zealand dollar dropped 0.1% and touched 70.72 U.S. cents after touching 71.20 the prior session for the first time since April 2018.