Dollar gains on euro, yen while pound rebounds

NEW YORK: The dollar climbed toward a fifth straight daily gain on Thursday on confidence in the US economic outlook and the possibility that Friday's jobs report might be stronger than expected.

The US dollar index rose 0.48% in New York morning trading to 91.507, its highest level in two months and up 1.7% for the year.

The move came with a 0.54% decline in the euro, which fell to $1.197, below what had seemed a resistance level of $1.20 earlier this week. It was its first move below $1.20 since Dec. 1.

The dollar also gained 0.4% against the yen, rising to 105.46, the highest level since Nov. 11.

After the dollar index lost 7% last year, its gains since December have come on short covering and a view that US economy's recovery from the pandemic will be relatively stronger than other countries.

"There's a fundamental shift here in the short term where we are seeing the US economic outlook really overpowering what we are seeing in the euro zone," said Ed Moya, senior market analyst at OANDA.

That view was reinforced on Thursday when the US government said the number of Americans filing new applications for unemployment benefits decreased last week.

Initial claims for state unemployment benefits totaled a seasonally adjusted 779,000 last week, better than economists had forecast and better than 812,000 in the prior week.

The dollar's move came as longer-term US Treasury yields rose on Thursday as investors positioned for a large pandemic relief package from Washington and a stabilizing US labor market.

The benchmark 10-year yield was up 1.5 basis points in morning trading at 1.1461% and at one point reached 1.16%, its highest since Jan. 12.

Democrats in the US Senate were poised for a marathon "vote-a-rama" session aimed at overriding Republican opposition to President Joe Biden's $1.9 trillion COVID-19 relief proposal.

At the same time, the British pound dove as much as a half percent on the day ahead of scheduled comments by the Bank of England about the possibility of negative interest rates and then rebounded to trade up 0.12% after the central bank spoke.

The bank said it would ask banks to get ready for the possibility of negative rates, but that financial markets should not view sub-zero borrowing costs as a foregone conclusion.

It added that while it expects Britain's economy to probably shrink by 4% in the first three months of 2021, it should recover rapidly towards pre-COVID levels over the year.

"The thing to monitor is how quickly Europe can get out the vaccine. If we see continued slowness there, you will see the gap widen between euro and dollar," said Justin Onuekwusi, portfolio manager at Legal & General.