Dollar tumbles on global growth prospects; bitcoin at new high

NEW YORK (Reuters) – The dollar fell on Tuesday to its lowest in 2-1/2 years, as investor appetite for risk increased on expectations of a solid global recovery and further monetary and fiscal stimulus from the United States.

FILE PHOTO: U.S. Dollar and Euro notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The greenback extended losses after news of proposed COVID relief as well as reports that U.S. Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi were due to speak at 1 p.m. EST about a stimulus package.

The proposed relief bill was $908 billion and would fund measures through March 31, including $228 billion in additional paycheck protection program funds for hotels, restaurants and other small businesses.

“The theme of the financial markets following the U.S. election has been one of risk-on across all asset classes,” said James Rider, research director at currency advisory firm FXvolResearch in Vancouver, Canada, a view consistent with a weak dollar trend.

“The risk-on sentiment has been directly correlated to the growing confidence that the election outcome is settled and that there will be a peaceful transition of power,” he added.

Currencies that trade higher in times of risk appetite such as the euro, sterling, as well as the Australian, New Zealand, and Canadian dollars all rose against the greenback.

The euro was near a three-month high, while the New Zealand dollar rose to its highest in more than two years.

Bitcoin was also on a tear, hitting a record high just under $20,000. The virtual currency was last down 1.9% t $19,320.

In mid-morning trading, the dollar index fell 0.6% to 91.428, hitting a more than two-year low of 91.405.

The dollar extended losses as well after mixed U.S. economic data showing a rise in construction spending, but a decline in a manufacturing index.

The euro hit a 2-1/2-year high vs dollar above $1.20 and was last 0.8% at $1.2029.

Nagging worries about rising coronavirus cases have not provided the dollar with much safe-haven support. Speculation is growing that the Fed will act to support the economy through a tough winter before vaccinations become available.

In prepared remarks released late Wednesday on the eve of his Senate testimony, Fed Chairman Jerome Powell said a slowing recovery and a surging pandemic mean the United States is entering a “challenging” few months, with potential deployment of a vaccine still facing hurdles of production and mass distribution before its impact on the economy becomes clear.

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

In separate testimony to be delivered at the same hearing, Treasury Secretary Steven Mnuchin said the economy had made “remarkable progress” recovering ground lost due to the pandemic, and that any further government help should be targeted to “workers and small businesses that continue to struggle,” as opposed to spread broadly in the economy.

Powell and Mnuchin testified on the CARES Act, under which Congress made $2 trillion available to the Treasury as coronavirus aid, a large portion of which was aimed to support the FOMC’s lending programs.

The New Zealand dollar hit its highest since June 2018 and was last up 0.7% at US$0.7054.

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