Dollar Gains on Euro, Yen While Pound Rebounds

By David Henry

NEW YORK (Reuters) – The dollar climbed toward a fifth straight daily gain on Thursday on confidence in the U.S. economic outlook and the possibility that Friday’s jobs report will be stronger than expected.

The U.S. dollar index rose 0.5% in New York afternoon trading to 91.509, up 1.7% for the year and its highest level in two months.

The move came with a 0.6% decline in the euro, which fell to $1.1966, below what had seemed a resistance level of $1.20 earlier this week. It was its first move below $1.20 since Dec. 1.

The dollar also gained 0.4% against the yen, rising to 105.53, the highest level since Nov. 11.

After the dollar index lost 7% last year, its gains since December have come on short covering and a view that the U.S. economy’s recovery from the COVID-19 pandemic will be stronger than in other countries.

“There’s a fundamental shift here in the short term where we are seeing the U.S. economic outlook really overpowering what we are seeing in the euro zone,” said Ed Moya, senior market analyst at OANDA.

That view was reinforced on Thursday when the U.S. government said the number of Americans filing new applications for unemployment benefits decreased last week.

Initial claims for state unemployment benefits totaled a seasonally adjusted 779,000 last week, better than economists had forecast and better than 812,000 in the prior week. The government will release on Friday its payroll job count for January, and economists are expecting a gain of 50,000 after a December decline of 140,000.

The dollar’s move came as longer-term U.S. Treasury yields rose on Thursday as investors positioned for a large pandemic relief package from Washington and a stabilizing U.S. labor market.

Longer-term U.S. Treasury yields rose as traders positioned for a large stimulus package from Washington. The 10-year yield was up one basis point in afternoon trading at 1.14% and at one point reached 1.16%, its highest since Jan. 12.

Democrats in the U.S. Senate were poised for a marathon “vote-a-rama” session aimed at overriding Republican opposition to President Joe Biden’s $1.9 trillion COVID-19 relief proposal.

At the same time, the British pound dove as much as a half percent on the day ahead of scheduled comments by the Bank of England about the possibility of negative interest rates and then rebounded to trade up 0.3% after the central bank comments.

The bank said it would ask banks to get ready for the possibility of negative rates, but indicated that financial markets should not expect sub-zero borrowing costs for at least six months, if at all.

It added that while it expects Britain’s economy to probably shrink by 4% in the first three months of 2021, it should recover rapidly towards pre-COVID levels over the year.

“The thing to monitor is how quickly Europe can get out the vaccine. If we see continued slowness there, you will see the gap widen between euro and dollar,” said Justin Onuekwusi, portfolio manager at Legal & General.

Cryptocurrency ethereum, which had gained 10% on Wednesday, slipped as much as 1% on Thursday after reaching an all-time high of $1,698.56 ahead of the launch of ethereum futures on the Chicago Mercantile Exchange next week.

Bitcoin was also off 1% on Thursday at $37,320.

Cryptocurrencies are gaining traction with more mainstream investors and their total market value topped $1 trillion for the first time in January.

Graphic: World FX rates https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html

(Reporting by David Henry in New York and Elizabeth Howcroft in London; Editing by David Gregorio and Will Dunham)