U.S. dollar slides to 2-1/2-year low on vaccine optimism

NEW YORK (Reuters) - The dollar plunged on Thursday to its weakest level in more than 2-1/2 years, while the euro gained, as signs of progress toward U.S. fiscal stimulus and optimism about COVID-19 vaccines kept investors upbeat.

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

In afternoon trading, the dollar index, a measure of its value against six major currencies, fell 0.3% to 90.72. Its session low of 90.504 was the lowest since April 2018.

With its safe-haven allure evaporating, the greenback also tumbled to a nearly six-year low against the Swiss franc.

In a possible sign of progress, Democratic House of Representatives Speaker Nancy Pelosi and Republican Senate Majority Leader Mitch McConnell consulted on coronavirus aid. Republicans have been pushing for a slim $500 billion measure that Democrats had rejected as too small to address the raging pandemic.

Investors have sold safe-haven dollars as risk appetite has been growing on optimism about COVID-19 vaccines, a day after the UK approved Pfizer Inc’s vaccine.

“The dollar bears are not going away any time soon,” said Edward Moya, senior market analyst at OANDA in New York. “Every day we get closer to the delivering of coronavirus vaccines and there’s just a whole lot of optimism that you’re going to see a much quicker recovery in 2021.”

The dollar was pressured by U.S. data showing initial claims for state unemployment benefits fell 75,000 to a seasonally adjusted 712,000 for the week ended Nov. 28. Economists polled by Reuters had forecast 775,000 applications.

Although tensions between the United States and China pose a downside risk, global markets expect improved trade relations under President-elect Joe Biden’s administration.

Graphic - Euro rises:

The euro soared to its highest since April 2018 at $1.2174 and was last at $1.2142, up 0.2% .

The pound was up 0.7% against the dollar at $1.3452, as Brexit negotiations continued. It pared gains after the BBC’s political editor Laura Kuenssberg said talks hit a snag late Thursday, with the European bloc introducing new elements.

The European Central Bank said it will provide further stimulus to help the euro zone when it meets on Dec. 10. Market participants will pay attention to any comments about the euro’s strength.

The Australian dollar - seen as a liquid proxy for risk - was up 0.4% on the day at US$0.7445 , after earlier hitting its highest level since August 2018.

The New Zealand dollar also touched fresh 2-1/2-year highs above US$0.71 and last traded up 0.23% on the day at US$0.7080.

The dollar fell to the lowest in more than a week versus the yen and last traded down 0.4% at 103.98 yen. The greenback also dropped 0.36% against the Swiss franc to 0.8917 franc, after sinking to its lowest level since January 2015.

Reporting by Gertrude Chavez-Dreyfuss and Suzanne Barlyn; Editing by Alexandra Hudson and David Gregorio