LONDON: The dollar languished near a 2-1/2-year low on Tuesday as investors were encouraged to take on more risk after US lawmakers pushed forward with an enhanced COVID-19 relief package.
The House of Representatives voted on Monday to more than triple stimulus payments to Americans to $2,000 from $600, sending the plan on to the Senate for a vote.
The euro and pound also strengthened as London reopened after its Christmas break. Traders were digesting the EU-UK Brexit trade agreement reached late last week and relieved a 'no-deal' had been avoided.
Euro bulls pushed the single currency up to $1.2235, also buoyed by talk of a EU-China trade pact. The pound was back above $1.35, while the dollar index was down 0.3% near the lows of April 2018.
"The dollar is very heavy," said Bart Wakabayashi, Tokyo Branch manager of State Street Bank and Trust. "And that will continue into next year."
Data released by the Commodity Futures Trading Commission on Monday showed traders increased bets against the greenback in the week ended Dec. 21 to $26.6 billion.
That was the highest in three months, Reuters' calculations found.
Sterling long positions grew ahead of the trade deal, the figures also showed, though the next set of data will reveal whether speculators "sold the fact".
Sterling rose 0.2% to $1.3484 following a two-day dip. It was as high as $1.3625 this month, a level unseen since May 2018, but investors have taken some profits since the Brexit trade deal was struck.
Nick Nelson, head of European Equity Strategy, said the firm's FX strategists were targeting GBP/USD $1.44 by end-2021.
State Street's Wakabayashi said, however, that "Nothing has really been agreed (between the EU and London) on financial markets, and that's a big negative for the UK."
EMERGING OPTIMISM
Other currencies also rose. The Australian dollar rose 0.2% to 75.927 US cents, while its New Zealand counterpart added 0.3% to 71.19 US cents.
The Chinese yuan gained 0.2% to 6.5192 per dollar in the offshore market. It changed hands onshore at 6.5310 per dollar while other heavyweight emerging market currencies, including the Korean won, Mexican peso and South African rand were also higher.
Bitcoin slipped 2.4% to $26,367, continuing its retreat from the all-time high of $28,377.94 it had set on Sunday.
In the bond markets, benchmark German 10-year government bond yields sank another basis point to -0.57% and outperforming 10-year Treasury yields, which were fractionally higher at 0.945% after a US bond auction.
Yields on 10-year Southern European bonds - deemed riskier with lower credit ratings - fell a touch too. Bond yields move inverse to price.