Dollar falls, sterling jumps as Brexit deal hopes lift risk appetite

(Reuters) - The dollar hovered near two-year lows on Monday as riskier currencies got a boost from progress on COVID-19 vaccines and the possibility of a U.S. coronavirus relief plan.

FILE PHOTO: Pound and U.S. dollar bills are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

The greenback last traded little changed to 90.7040, down 0.07%, as an intensive care unit nurse became the first person in the United States to receive the vaccine developed by Pfizer Inc and German partner BioNTech SE on Monday.

Its arrival provided some relief as the country passed the grim milestone of 300,000 lives lost on Monday.

“It’s one of those days where we are settling down and understanding just how successful we may be in distributing these vaccines,” said Juan Perez, senior foreign exchange trader and strategist at Tempus, Inc. “That has created a very strong risk-on sentiment.”

The vaccine comes as negotiators in the U.S. Congress were nearing agreement on Monday on a massive government spending deal that would avoid a government shutdown and could serve as the vehicle to pass a fresh round of aid to a coronavirus-hit nation.

Lawmakers, facing a midnight Friday deadline, were scurrying to put the finishing touches on a $1.4 trillion spending bill for the fiscal year that began on Oct. 1. A $908 billion bipartisan COVID-19 relief plan will be split into two packages, a person briefed on the matter said.

“I think you’re going to have some optimism that maybe we’re going to be able to get some relief push through,” said Ed Moya, senior market analyst at foreign exchange broker OANDA. “And that is going to be very negative for the dollar.”

The dollar index earlier fell as low as 90.419, the lowest since April 2018.

Investors will also be playing “catch up” with their positions related to Brexit as Britain and the European Union committed extended their Sunday deadline in an effort to strike a trade deal, Moya said.

The pound gained after the UK and European Union agreed on Sunday to continue Brexit talks.

The pound was last up 0.79% versus the dollar, at 1.3324 - a jump from its low point of $1.3133 on Friday.

Wall Street’s main indexes rose on Monday as investors gained confidence in risk-raking.

The risky Australian and New Zealand dollars were also up, with the New Zealand dollar reaching its strongest since April 2018 at 0.7086, up 0.08% versus the dollar.

The Aussie - a liquid proxy for risk - was last up 0.07% versus the dollar at 0.7539.

The euro rose around 0.31% versus the dollar, at $1.2146. New coronavirus restrictions on activity in Europe - including a strict lockdown in Germany - had limited market impact.

Bitcoin was last up 0.03%, at $19,132.83.

For the week ahead, market participants will focus on a series of central bank meetings, including the U.S. Federal Reserve on Wednesday and the Bank of England on Thursday.

Reporting by Suzanne Barlyn; editing by Jonathan Oatis and David Gregorio