Depressed US dollar plumbs lowest levels in nearly 3 months, FOMC minutes awaited


LONDON (Reuters) - The US dollar traded near its lowest levels in nearly 3 months 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 traded 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.

The greenback recovered some ground by midday in London however, as some of the early boost to risk appetite faded with stocks in Europe turning negative. The euro fell 0.1% to the dollar to US$1.18820.

Still, the 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 British pound bought US$1.3326, close to its highest in more than two months.

Against the yen, the dollar gained marginally to 104.48.

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 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 92.235 after falling 0.4% on Tuesday.

The onshore yuan rose to 6.5739 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 by midday in London.

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 US$19,241 just short of its record of US$19,666 from December 2017.

(Reporting by Ritvik Carvalho; additional reporting by Stanley White in Tokyo; Editing by Ana Nicolaci da Costa and Chizu Nomiyama)

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