Dollar weak across board; Swedish crown falls after Riksbank QE expansion

LONDON: The euro rose to a nearly three-month high on Thursday as the dollar went on the defensive on downbeat U.S. economic data and optimism about coronavirus vaccines

Investors sought riskier assets tied to global commodities and emerging markets, with the British pound close to a three-month high against the dollar as traders also awaited details on trade talks between Britain and the European Union this week.

The Swedish crown fell on Thursday, both against the euro and the dollar, after Riksbank expanded its quantitative easing programme.

Pressure mounted on the U.S. currency also after Federal Reserve minutes on Wednesday signalled the central bank is likely to strengthen their quantitative easing program at the next meeting in December.

Although a few Fed policymakers were hesitant to make near-term changes to the guidance because of the uncertain outlook, "many participants judged that the Committee might want to enhance its guidance for asset purchases fairly soon," according to the minutes released Wednesday from the Fed's Nov. 4-5 meeting.

Lee Hardman, currency analyst at MUFG, estimated that the new guidance could see the Fed commit to continue purchasing at least $120 billion per month of securities until it judges that it has made substantial progress towards its goals.

However, the size of the QE programme might not necessarily be increased, Hardman said.

Still, "the developments support our view that loose Fed policy will remain a weight on the U.S. dollar next year."

"We are wary in the near-term though that the market is already very short U.S. dollars which slows downward momentum and poses the risk of short squeezes," he said.

Trading was was subdued on Thursday because U.S. financial markets are closed later on Thursday for the Thanksgiving holiday.

Euro/dollar was last trading up 0.1pc at $1.1924 after rising to $1.1941, its highest since Sept. 1. An index which tracks the U.S. dollar against a basket of currencies was flat at 91.99, though earlier it had achieved a near three-month low of 91.84

Restrictive measures designed to slow the spread of the coronavirus in Germany will be in place until at least the end of December and possibly longer, Chancellor Angela Merkel told parliament on Thursday.

Scandinavian currencies were falling, with the Swedish crown down 0.4pc against the dollar at 8.52 and by the same extent against the euro at 10.1585.

Sweden's central bank said on Thursday it would expand and extend its asset purchase programme to support the economy through a second wave of the coronavirus pandemic as it kept its benchmark rate on hold at 0pc as expected.

The Norwegian crown was also down 0.4pc at 8.8515 against the U.S. dollar, after rising earlier to a three-month high of 8.8160, also falling by 0.4pc at 10.5545 versus the euro.

The Australian dollar was down 0.1pc at 0.7358, though earlier it rose to a near three-month high of 0.7374, and the Canadian dollar was neutral at 1.3007 against the U.S. dollar.

"A China-led recovery in the global economy and commodities should benefit commodity currencies," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"The outlook is good, but we are reaching levels where authorities might feel some concern. Other emerging market currencies with good fundamentals should benefit."

Sterling fell 0.2pc at $1.3355 after rising to a three-month high of $1.3399, and was also down by 0.3pc against the euro at 89.22 pence.