Pressure grows on the dollar as vaccine hopes get tested

[November 18, 2020]  By Julien Ponthus

LONDON (Reuters) - Pressure increased on Wednesday against the dollar which hit its lowest level in over a week as tighter economic restrictions across the United States and Europe tested market optimism over vaccine trials.

Most notably, the retail sales report released by the U.S. Commerce Department showed spending decelerating as the holiday shopping season approaches, amid a lack of fresh fiscal relief from Washington.

Against a basket of currencies the dollar <=USD> eased to 92.250, its lowest level since November 9.

"The U.S. Dollar drifted lower overnight following disappointing U.S. Retail Sales and with increasing concerns about the downstream effects of the resurgent Covid-19 pandemic", wrote OANDA analyst Jeffrey Halley to his clients.

"That leaves the Federal Reserve meeting well and truly 'live' in December, with further easing likely to add to the downward pressures on the U.S. Dollar heading into 2021", he added.

Federal Reserve Chair Jerome Powell said on Tuesday there was "a long way to go" to economic recovery.

Bitcoin <BTC=BTSP>, sometimes regarded as a haven asset, or at least a hedge against inflation, continued its surge over the $18,000 line, a milestone crossed for the first time in nearly three years.

Amid the uncertainty over the global economic recovery, the safe-haven Japanese yen climbed to a one-week high.

At 103.85 per dollar, the yen <JPY=> came back to its November 9 levels, recouping much of the losses it suffered last week after Pfizer announced it had developed a working COVID-19 vaccine.

The euro <EUR=> was rising about 0.2% at $1.1881 with investors seemingly not worried about Poland and Hungary blocking the EU's 1.8 trillion euro ($2.14 trillion) financial package to revive an economy depressed by the COVID-19 pandemic.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

"ALL WILL LIVE HAPPILY EVER AFTER"

"It seems likely that in December, when a summit with physical presence is planned, the EU will accept a compromise on the breach of the rule of law so that both countries can then save face and still accept the EU budget and the recovery fund", Commerzbank strategist Antje Praefcke argued.

"And all will live happily ever after – and therefore no reason to sell the euro", she added.

Budapest and Warsaw vetoed the adoption of the 1.1 trillion euro 2021-2027 EU budget and the 750 billion euro recovery fund on Monday because the budget law included a clause which makes access to money conditional on respecting the rule of law.

On the Brexit front, UK Business Secretary Alok Sharma said Britain hoped to get a Brexit trade deal but that the European Union had to understand it was now dealing with a sovereign nation.

The statement came after the Sun newspaper reported that Prime Minister Boris Johnson was told by British negotiators to expect a Brussels trade deal early next week, with "a possible landing zone" as soon as next Tuesday.

Sterling was rising about 0.3% to in morning trades to $1.3284 and in striking distance of peaks unseen since the beginning of September.

British inflation picked up by a little more than expected in October, pushed higher by prices for clothing and footwear and food as coronavirus restrictions tightened in much of the country.

(Reporting by Julien Ponthus; Editing by Angus MacSwan)

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