The dollar fell against most currencies on Wednesday, as risk appetite held up on optimism about a massive stimulus package under the new Joe Biden administration that will likely bolster a U.S. economic recovery.
he greenback slid against the yen as well as currencies tied to commodity prices such as the Australian, Canadian, New Zealand dollars, and the Norwegian crown. The U.S. dollar dropped to a three-year low versus its Canadian counterpart and sterling, while hitting a two-week trough against the yen.
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The S&P 500 climbed to a new all-time peak, while U.S. crude futures gained as the risk rally carried on.
Biden was sworn in as the 46th president of the United States on Wednesday, vowing to end the "uncivil war" in a deeply divided country reeling from a battered economy and a raging coronavirus pandemic that has killed more than 400,000 Americans.
The new government is expected to push through Congress a nearly $2 trillion U.S. fiscal stimulus plan. "Once you are no longer uncertain about something and it materializes, the overall optimism grows and gives way to the global recovery narrative," said Juan Perez, senior FX strategist and trader at Tempus Inc. in Washington.
"The election and the issues after -- all of them played a dramatic role, but now it's over. Joe Biden is president and stimulus hopes are, like some markets, at a record high," he added.
In afternoon trading, the dollar fell 0.4% against the yen to 103.54, sliding to a two-week low earlier in the session to 103.45.
The U.S. dollar tumbled to a three-year low versus the Canadian currency at C$1.2607, after the Bank of Canada on Wednesday opted not to cut interest rates. The greenback was last down 0.7% at C$1.2642.
The Aussie dollar rallied 0.6% to US$0.7745, while the New Zealand currency also gained 0.6% to US$0.7167.
Sterling rose to a three-year high versus the dollar of $1.3720, but surrendered some of those gains to trade up just 0.1% at $1.3643.
A combination of heightened risk appetite in global markets and UK-specific optimism lifted the pound on Wednesday. The dollar index, meanwhile, was up 0.1% at 90.483. Since the beginning of the year, the index has posted a modest 0.5% gain.
Futures positioning data still shows that investors are overwhelmingly short dollars as they figure that budget and current account deficits will weigh on the greenback.
The euro fell 0.2% against the dollar to $1.2106.
European countries are struggling to contain the contagion of the coronavirus amid worries that a new variant could lead to more stringent lockdowns and more economic pain.
Investors are also fretting about the slower pace of the rollout of vaccines relative to the United States and Britain, which may hobble economic recovery in the euro zone.