Dollar bounce put on hold as coronavirus vaccine euphoria fades

TOKYO (Reuters) - The dollar’s gains were put on hold on Wednesday as optimism about a coronavirus vaccine was offset by worries about how the drug will be delivered and by a surge of new infections in the United States.

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The New Zealand dollar is in focus ahead of a central bank meeting later on Wednesday that may shed light on whether policymakers will adopt negative interest rates.

Initial optimism about coronavirus vaccine testing pushed the dollar up against the safe-harbour yen and the Swiss franc, but this momentum is starting to fade because there are still several obstacles to clear before a vaccine can be distributed.

“The dollar recovery is on hold for now because, when you look at the details, there are still a lot of hurdles to clear before any vaccine is rolled out,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

“However, the dollar is supported by rising Treasury yields, which should help the dollar make another push higher before year’s end.”

The dollar was last quoted at 105.23 yen, trading near a three-week high.

Against the euro, the dollar was little changed at $1.1820.

The British pound traded at $1.3260, close to a two-month high due to growing optimism that Britain and the European Union will agree a long-sought-after trade deal.

Sterling also held on to overnight gains against the euro.

Sentiment for the dollar got a boost after Pfizer Inc and BioNTech said on Monday their experimental coronavirus vaccine was 90% effective.

However, the reaction across financial markets has become more tempered because there are several logistical hurdles to making the drug available, including that it has to be shipped at extremely cold temperatures.

Several U.S. states on Tuesday imposed restrictions to curb the spread of the coronavirus as hospitalizations soared, highlighting the difficulty in containing the virus as winter in the Northern Hemisphere approaches.

The dollar index against a basket of six major currencies was little changed at 92.729.

Elsewhere in currencies, the New Zealand dollar traded near its highest level against the greenback in more than a year ahead of a Reserve Bank of New Zealand policy meeting that may yield comments about the possibility of negative interest rates.

The central bank is expected to hold rates at 0.25% and introduce a new monetary policy tool to drive borrowing costs lower for lenders.

Across the Tasman Sea, the Australian dollar held steady against its U.S. counterpart.

Reporting by Stanley White; editing by Richard Pullin