FOREX-Dollar plumbs two-year lows; Aussie and Kiwi stabilise

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates prices, adds commentary and detail)
By Elizabeth Howcroft
LONDON, Dec 3 (Reuters) - The dollar index hit its lowest in
more than two years on Thursday, while the euro held above
$1.21, as signs of progress towards U.S. fiscal stimulus and
optimism about COVID-19 vaccines kept investors upbeat even as
the equity rally paused.
Lawmakers in Washington have failed to reach an agreement on
economic stimulus to help relieve the impact of COVID-19 in the
United States, but there were early signs that a $908 billion
bipartisan proposal could be gaining traction. Risk appetite was also boosted by optimism about recent
developments towards the roll-out of COVID-19 vaccines. The UK
approved Pfizer Inc's vaccine on Wednesday. Although the rally in European equities paused for breath,
as data underscored the economic damage caused by the pandemic,
currency markets were still "risk-on". The dollar fell, hitting as low as 90.834 versus a basket of
currencies - its lowest since April 2018. At 1124 GMT, it was at
90.918, down 0.1% on the day =USD .
Joel Kruger, market strategist at LMAX Group said the
expectation of further stimulus meant that markets continued to
look on the bright side.
"The market right now is focused on continuing to shrug off
any downside risk and continuing to be fixated on any positive
developments around the vaccine, around fiscal stimulus and, as
things progress towards year-end, perhaps most importantly
around messages and communications from the Federal Reserve and
U.S. administration," Kruger said.
Although tensions between the United States and China pose a
downside risk, the latest developments have had limited impact
on global markets because of the expectation of more normalised
trade relations under the Biden administration. The euro was also at its highest in more than two years,
having crossed $1.21 on Wednesday. It rose to as high as $1.2139
on Thursday. At 1136 GMT, it was at $1.2127 EUR=EBS .
The European Central Bank has said it will provide further
stimulus to help the euro zone when it meets on Dec. 10. Market
participants will also be paying close attention to any comments
about the euro's strength. LMAX Group's Kruger said he would expect the ECB to express
discomfort with the additional currency appreciation.
The moves in the euro are largely due to dollar weakness,
rather than euro drivers, ING strategists wrote in a note.
Deutsche Bank strategists said that euro-dollar could reach
$1.30 by the end of 2021.
The European Union is embroiled in a dispute with members
Hungary and Poland over its budget and COVID-19 recovery fund.
The announcement of the recovery fund plan saw the euro surge
earlier this year. "If one considers how clearly the euro benefitted from the
EU countries being able to agree on the recovery fund in July it
does come as a surprise that the euro is not suffering more
significantly now that the project is on the brink," Commerzbank
strategist Esther Reichelt wrote in a note to clients.
The Australian dollar - seen as a liquid proxy for risk -
was up 0.1% on the day at 0.7423 at 1145 GMT, having earlier hit
new two-year highs.
The kiwi dollar also held near recent highs, up 0.1% on the
day at 0.7072 NZD=D3 .
The Japanese yen was steady at 104.3 at 1146 GMT JPY=EBS ,
while the safe-haven Swiss franc was up around 0.2% versus the
euro at 1.082 EURCHF=EBS .
The pound was at $1.3441 GBP=D3 , helped by the dollar
weakness, as Brexit negotiations continue. EU diplomats said
they hoped a Brexit trade deal with Britain could be agreed by
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Euro rises https://tmsnrt.rs/2JmhjME
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