The euro, Aussie and New Zealand dollars all posted more than two-year highs against the struggling greenback on Wednesday as investors bet on more U.S. fiscal support and positioned for year-end in light trading volume.
Investors are betting that an improving economic outlook as COVID-19 vaccines are rolled out and unprecedented fiscal and monetary stimulus will boost global growth and asset prices in 2021.
U.S. economic growth is expected to drag behind peers, however, with the U.S. currency also suffering from rising fiscal and current account deficits as the government increases spending to tackle coronavirus-related business shutdowns.
"The start of Covid-19 immunization campaigns in several countries as well as additional U.S. fiscal support have reduced downside risk to the global economy and bode well for general financial market sentiment. This remains a drag for USD," Elias Haddad, senior currency Strategist at Commonwealth Bank of Australia, said in a report on Wednesday.
The dollar fell 0.4% against a basket of currencies to 89.68 after earlier dropping to 89.56, the lowest since April 2018. It is down more than 7% this year.
Trading volumes are thin with many investors out between the Christmas and New Year holidays. The euro reached $1.2310, before falling back to $1.2279, up 0.30% on the day.
The Aussie surged to $0.7680, and was last up 0.9% at $0.7677. The kiwi reached $0.7199.
It was the highest level for all three currencies against the U.S. dollar since April 2018.
The dollar also slipped 0.5% to 103.05 yen. It is holding just above a nine-month low of 102.86 yen reached on Dec. 17.
Optimism of further stimulus came even after Senate Majority Leader Mitch McConnell on Tuesday put off a vote on increasing COVID-19 relief checks from $600 to $2,000.
U.S. President-elect Joe Biden is expected to push for more measures to support the U.S. economy after he is inaugurated next month.
Sterling also jumped before lawmakers on Wednesday voted on the Brexit deal Prime Minister Boris Johnson clinched last week.
The agreement avoids a chaotic no-deal exit, but does not cover services, which make up 80% of the British economy.
The pound gained 0.7% to $1.3601. It is holding below the $1.3625 level reached earlier this month, the highest since May 2018.