U.S. dollar rises as selling takes a pause, but downtrend intact

NEW YORK: The dollar gained on Tuesday, taking a breather from a sell-off that took it to its lowest in more than 2-1/2 years last week, as U.S. equities came under pressure after recent gains, while sterling slid as investors awaited the outcome of Brexit trade-deal talks.

"Any good news we had on the vaccines last week has been fully priced in, said Ron Simpson, managing director, global currency analysis, at Action Economics in Tampa, Florida.

"So I don't think there's anymore vaccine upside for equities. If equities remain under pressure, we're going to see the dollar hold its own in the short term."

An index tracking the dollar's value rose 0.1% to 90.978.

Upbeat economic sentiment data from Germany lifted the euro earlier in the session, but it was last flat to slightly lower at $1.2104.

German investor sentiment soared more than expected in December on expectations that vaccines against the coronavirus would boost the outlook for Europe's largest economy.

The ZEW economic research institute said its survey of investors' economic sentiment moved up to 55.0 from 39.0 in the previous month. A Reuters poll had forecast a reading of 45.5.

So far this year, the euro has gained more than 8% versus the greenback.

Tuesday's big mover was sterling, which sank against both the dollar and the euro.

With only three weeks to go for Britain to fully complete its exit from the European Union, leaders have failed to narrow differences on a post-Brexit trade deal.

Against the dollar, the pound was last 0.4% lower at $1.3323 It was also 0.6 lower against the euro, which rose to 90.82 pence .

"The market base case is clearly still a (slim) trade deal when judged from prediction and betting markets," said Andreas Steno Larsen, chief global strategist at Nordea.

"No one really dares to call the no deal with WTO-tariffs scenario ... we could still have a grim trading period ahead for the GBP if negotiations break down."

Implied volatility on the pound - a measure of expected future swings in the currency - hit eight-month highs, a sign that traders were preparing for gyrations.

The dollar was up 0.1% against the yen at 104.16 yen, but it slipped 0.1% versus the Swiss franc to 0.8896 franc.

Overall, the dollar's weak trend remained firmly entrenched, analysts said.

"The dollar is going to remain under pressure in 2021 and continue heading lower as economies reopen and also because there's going to be a lot of demand for emerging market currencies," Action Economics' Simpson said.