* Dollar hits two-month highs vs euro, yen
* BoE in focus for sterling
* Euro briefly falls below $1.20
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
LONDON, Feb 4 (Reuters) - The dollar strengthened to
two-month highs against the euro and yen, after data pointed to
an improvement in the U.S. economic outlook, while risk appetite
in global stock markets eased off.
U.S. Treasury yields ticked higher after ADP payroll data
showed an increase in employment on Wednesday and ISM data
showed services industry activity in the United States rose to
its highest in nearly two years in January.
Dollar short positions are elevated, meaning that the dollar
has room to rise when speculators quit those positions
0#NETUSDFX= . "We are not convinced that the US dollar's current rebound
will prove sustainable beyond the near-term," Lee Hardman, a
currency analyst at MUFG, wrote in a note to clients, citing the
continued decline of U.S. real yields.
"In the near-term, though, there is still a risk that the US
rebound can extend further following to heavy sell off at the
end of last year," he said.
"The relentless move higher in global equity markets has
lost some upward momentum at the start of this year, which is
creating a more supportive backdrop for the US dollar in the
near-term. The slow initial roll out of vaccines in Europe is
also creating some concern that it risks undermining the outlook
for global recovery in 2021 and boosting the relative appeal of
the US dollar," he added.
At 0817 GMT, the dollar was at 91.298 versus a basket of
currencies, up 0.2% on the day =USD .
Bullish comments from U.S. Federal Reserve policymakers and
renewed hopes for U.S. fiscal stimulus are also lending new
impetus to reflation trades. The Democratic-controlled U.S. House of Representatives
approved a budget outline on Wednesday that would allow them to
pass President Joe Biden's proposed $1.9 trillion coronavirus
aid plan without Republican support. The euro briefly fell below $1.20 for the first time since
Dec. 1 EUR=EBS .
"Short-term risks remain to the EUR/USD downside, given the
positioning and slow pace of EZ vaccination," ING strategists
wrote in a note.
In the UK, the Bank of England's meeting is in focus.
Although no changes to monetary policy are expected, investors
will be listening for comments on the economic recovery and the
outcome of the bank's consultation on negative rates.
Businesses in Britain have been hobbled by a third national
lockdown and are grappling with post-Brexit barriers to trade
with the European Union, after Britain left the bloc's single
market on Dec. 31. At 0825 GMT, the pound was lower against the euro and down
0.5% against the dollar at $1.2580 -- a 17-day low GBP=D3 .
"For today, Sterling could benefit if the BoE maintains its
critical stance on negative rates. However, with a view to
Brexit we continue to see downside risks for Sterling," wrote
Commerzbank strategist You-Na Park-Heger in a note.
Elsewhere, the Australian dollar was up around 0.2% at
0.76320 versus the U.S. dollar. The Norwegian crown was down
around 0.3% NOK=D3 .
The yen was down around 0.1% against the dollar at 0836 GMT,
at 105.180 JPY=EBS .
Bitcoin continued to climb, touching a 20-day high
BTC=BTSP . Ethereum reached record highs above $1,600 ETH= .
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