FOREX-Dollar falls; sterling up 1.5% as Brexit deal hopes lift risk appetite

* Dollar falls, Aussie and Kiwi gain as markets pro-risk
* Pound sterling surges more than 1.5% as Brexit talks
continue
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates prices, adds commentary)
By Elizabeth Howcroft
LONDON, Dec 14 (Reuters) - The dollar fell close to two-year
lows on Monday as renewed hopes for a Brexit deal and fiscal
stimulus in the United States, as well as progress on Covid-19
vaccines, lifted riskier currencies.
The pound gained after the UK and European Union agreed on
Sunday to continue Brexit talks and the EU's chief negotiator
said a deal was still possible. At 1220 GMT, the pound was up 1.5% versus the dollar, at
$1.3423 - a jump from its low point of $1.3135 on Friday
GBP=D3 . Versus the euro, it was up around 1.1% at 90.535 pence
EURGBP=D3 . "Despite being a very close call at this stage, we still
think a deal is the most likely scenario and therefore expect a
GBP rally to materialise in the next two weeks," ING strategists
wrote in a note to clients.
"Still, the currency reaction function is asymmetrically
skewed to the downside as, despite last week's drop, GBP is
still pricing a good probability of a deal," they added.
Wall Street was set to open higher, after the United States
began its first shipments of the COVID-19 vaccine to
distribution centres on Sunday, raising hopes for a swift
recovery from the global coronavirus-induced economic downturn.
The dollar was down around 0.3% against a basket of
currencies at 90.534 at 1222 GMT, staying within December's
ranges but not far from its lowest since 2018 =USD .
"The expectations of a deal in the UK has actually helped
risk sentiment globally," said Neil Jones, head of FX sales for
financial institutions at Mizuho.
Jones said that hopes for a fiscal stimulus deal in
Washington were also boosting market sentiment.
A $908 billion bipartisan COVID-19 relief plan, which could
be introduced in the U.S. Congress as early as Monday, will be
split into two packages in a bid to win approval, a person
briefed on the matter said. U.S. dollar net short positioning in the latest week climbed
to its highest since late September, according to calculations
by Reuters and Commodity Futures Trading Commission data
released on Friday. The risky Australian and New Zealand dollars were also up,
with the New Zealand dollar reaching its strongest since April
2018, at 0.712 NZD=D3 .
At 1222 GMT, the Aussie - a liquid proxy for risk - was up
0.4% versus the dollar at 0.75685 AUD=D3 .
The euro rose around 0.4% versus the dollar, at $1.21545.
New coronavirus restrictions on activity in Europe - including a
strict lockdown in Germany - had limited market impact.
Elsewhere, China's yuan rose against the dollar as market
participants shrugged off an attempt by the Chinese central bank
to stem yuan appreciation by reducing capital inflows.

At 1223 GMT, the dollar was down around 0.2% on the day
versus the offshore yuan, at 6.5251 CNH=EBS .
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. "It'd be interesting to see if we get any commentary from
the Bank of England in terms of possible Brexit outcomes and
what it would do in the case of a no-deal … that's probably the
one to watch out for this week," said Mizuho's Neil Jones.