FOREX-Dollar steadies; euro hurt by vaccine delays and German business morale slump

* Dollar index flat on the day
* Euro-dollar slips after German business moral survey
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(Updates throughout)
By Elizabeth Howcroft
LONDON, Jan 25 (Reuters) - The dollar steadied, the euro
slipped and riskier currencies remained strong on Monday, as
currency markets were torn between optimism about U.S. stimulus
plans, and the reality of slow vaccine rollout and the economic
impact of lockdowns in Europe.
Market sentiment had turned more cautious at the end of last
week as European economic data showed that lockdown restrictions
to limit the spread of the virus hurt business activity,
dragging stocks lower. The safe-haven dollar declined gradually overnight, and
riskier currencies strengthened. It then recovered some losses
after European markets opened, and was at 90.224 against a
basket of currencies at 1152 GMT, flat on the day =USD .
On one hand, market sentiment is supported by hopes for
President Joe Biden's $1.9 trillion fiscal stimulus plans, as
well as the expectation that central banks will continue to
provide liquidity. But, in Europe, the extent of the risk appetite was limited
by a lack of progress in rolling out the COVID-19 vaccine as
well the economic impact of lockdown measures. German business morale slumped to a six-month low in January,
surprising market participants who had expected the survey to
show a rise. "It's very much a case of hopes for the future against the
reality of the first quarter of this year which is going to
still prove to be fairly troubled," said Jeremy Stretch, head of
G10 FX strategy at CIBC Capital Markets.
"For now at least, the optimism that we're hoping for has
been somewhat delayed and that has taken a little bit of steam
out of the euro and just put a little bit of support back in the
dollar but ultimately I think it is still a case of those
high-beta commodity currencies, reflation currencies, will
continue to perform well," he said.
Analysts expect a broad dollar decline during 2021. The net
speculative short position on the dollar grew to its largest in
ten years in the week to Jan. 19, according to weekly futures
data from CFTC released on Friday. The U.S. Federal Reserve meets on Wednesday and Fed Chair
Jerome Powell is expected to signal that he has no plans to wind
back the Fed's massive stimulus any time soon - news which could
push the dollar down further.
"The process of tapering QE is likely to be a gradual
process which could last throughout 2022, and then potentially
be followed by the first rate hikes later in 2023," wrote MUFG
currency analyst Lee Hardman.
"In these circumstances, we continue to believe that it is
premature to expect the US dollar to rebound now in anticipation
of policy tightening ahead, and still see scope for further
weakness this year," he said.
The euro was down around 0.1% against the dollar, at $1.2153
at 1207 GMT EUR=EBS . At the European Central Bank meeting last
week, President Christine Lagarde said the bank was closely
watching the euro. The euro surged 9% last year versus the
dollar and reached new two and a half year highs earlier in
January.
But despite this verbal intervention, traders remain bullish
on the euro, expecting the bar for a rate cut to be high.
Elsewhere, the Australian dollar, which is seen as a liquid
proxy for risk, was up 0.2% at 0.7726 versus the U.S. dollar at
1208 GMT.
The New Zealand dollar was up 0.5% NZD=D3 , while the
commodity-driven Norwegian crown was up 0.2% the euro
EURNOK=D3 .
The safe-haven Japanese yen was flat on the day at 103.815
versus the U.S. dollar JPY=EBS .

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World FX rates https://tmsnrt.rs/2RBWI5E
USD https://tmsnrt.rs/3a0DdOD
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