Dollar extends decline as risk appetite favors equities

By Stephen Culp

NEW YORK (Reuters) – The dollar lost ground on Friday, extending Thursday’s decline as improved risk appetite attracted buyers to equities and away from the safe-haven greenback.

The U.S. dollar has been weighed down by a string of soft labor market data, even as President Joe Biden’s proposed $1.9 trillion spending package takes shape.

“What the foreign exchange market is looking at in the short term, is the dollar is going to be weak despite progress in the economy because this country has a huge deficit problem,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “The dollar index could easily test the lows of last September.”

Also weighing on the dollar, the real yield gap between the United States and Germany is at its tightest since March, analysts said, despite the recent rise in U.S. Treasury yields.

Bitcoin continues to hover at record highs, and the world’s largest cryptocurrency was last up 2.6% at $52,931.46, nearing $1 trillion in market capitalization.

Its smaller rival, ethereum, was last down 1.0% at $1,920.13.

The digital currencies have gained about 82% and 1,400%, respectively, year to date, leading some analysts to warn of a speculative bubble.

“There may be a place for (cryptocurrencies) somewhere down the road, but the theories that cryptos will replace paper currency are far-fetched,” Cardillo added. “It’s total speculation at this point and people are going to pay the price.”

The Australian dollar, which is closely linked to commodity prices and the outlook for global growth, was last up 1.15% at $0.7858, touching its highest since March 2018.

The New Zealand dollar also gained, closing in on a more than two-year high, and the Canadian dollar advanced as well.

Sterling rose to an almost three-year high amid Britain’s aggressive vaccination programme. It had last gained 0.34% to $1.40.

The euro showed little reaction to a slowdown in factory activity indicated by purchasing manager index data, rising 0.29% to $1.2126.

The yen, gained ground against the dollar and was last at 105.495, creeping above its 200-day moving average for the first time in three days.

(Reporting by Stephen Culp, additonal reporting by Tommy Wilkes; editing by Emelia Sithole-Matarise)