Dollar plumbs two-year low as Fed comes in to focus

By Tom Westbrook
SYDNEY (Reuters) - The dollar hit more than a two-year low on Monday and is expected to see its largest monthly decline since July as a combination of vaccination optimism and betting on greater monetary easing in the US drove investors out of the world's reserve currency.
Against a basket of currencies, the greenback fell 0.1% to 91.707, its lowest level since April 2018. The risk-sensitive New Zealand dollar hit a two-and-a-half year high and is aiming for its best monthly percentage gain in seven years.
"The topics remain familiar: broad dollar weakness with improved risk appetite," said ANZ Bank analysts in a note.
"This sentiment is expected to continue into December and the (US Federal Reserve) meeting where further action is likely given the near-term virus risks in the US."
The euro and the Australian dollar both rose modestly, hitting three-month highs, although movement was small as world stocks paused at the end of the biggest rally of the calendar month ever. [MKTS / GLOB]
The Aussie is up more than 5% over the month, the Kiwi is up 6.3% and the Euro is up 2.8%. [AUD /]
The pound sterling was trading at $ 1.3325, up almost 3% against the dollar this month as investors betting on a Brexit deal are being referred even as the deadline for talks lengthened.
The dollar index fell about 2.5% in November as promising trial results for key vaccine candidates roused investors over a possible end to the coronavirus pandemic. It's nearly 11% below a March high of 102,990.
Nervousness over a wave of new infections in Europe and the United States and new lockdowns have supported safe haven currencies and moderated the falling dollar.
However, as the drawn-out US election kept lawmakers from passing a budget spending package, investors have expected the Fed to likely step in with more bond purchases at their next meeting in December.
Fed Chairman Jerome Powell's testimony to Congress Tuesday and Wednesday and this week's US labor market data will be scrutinized for clues about central bank thinking and the general shape of the economic recovery.
The Japanese yen was 0.3% firmer Monday at 103.87 per dollar, and gained just over half a percent through November when the death toll from the pandemic rose to 1.5 million people.
"The dollar is gently moving towards the lows of the year as investors reallocate their portfolios to recovery businesses in the rest of the world," ING strategists Chris Turner and Francesco Pesole said in a statement to clients.
"While further lockdowns could put a brake on US equity markets, the prospect of the Fed willing to add more liquidity should limit the dollar's uptrend. Given the dollar index has fallen seven of the last ten December, we prefer one gentle dollar posture down by year end. "
November also marks a sixth straight monthly gain for the Chinese yuan, up 9% from its May low. [CNY /]
This is a similar increase in monthly profits six years ago, but is far larger as global capital flows into China's remarkable coronavirus recovery.
Month-end dollar demand weighed on the Chinese currency on Monday, offsetting another month of strong economic data. The yuan fell 0.2% to 6.5851 to the dollar.
The greenback was broadly stable elsewhere, despite Bitcoin gaining 2% to $ 18,557. It is up 34% this month, the biggest monthly gain since April.
Later in the day, investors are waiting for European inflation data and at 10:30 GMT for a speech by European Central Bank President Christine Lagarde.
(Reporting by Tom Westbrook; Editing by Sam Holmes)
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