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Euro near three-month high as dollar takes a hit

One of the currencies to watch was the New Zealand dollar, which was on course to reach its highest since June 2018.

Investors are short dollars as optimism about promising vaccine trials drives buying of riskier currencies and higher- yielding assets outside the United States.

Worries about rising coronavirus cases have not provided the dollar with much support, as speculation grows that the Federal Reserve will act to support the economy through a tough winter before vaccinations become available.

The Fed meets to set policy on Dec. 15 and 16. Before then – on Tuesday and Wednesday – Fed Chair Jerome Powell will appear before Congress, and his remarks will be closely watched for any clues as to the Fed’s next moves.

Powell and Treasury Secretary Steven Mnuchin will testify on the CARES Act, under which Congress made $2 trillion available to the Treasury as coronavirus aid, a large portion of which was aimed to support the FOMC’s lending programs.

Less than two weeks ago, Mnuchin cut off the programs, requesting that the Fed return unused funds and declined any extension.

“With all that in mind, it will be interesting to see what the two officials have to say on the matter, and whether Powell will hint at other ways in stimulating the U.S, economy from a monetary policy front,” said Charalambos Pissouros, senior market analyst at JFD Group.

“The U.S. government has yet to agree with Congress on a new fiscal package, something that makes the case for the Fed to act in December more likely,” he said. If that happens, “the U.S. dollar and other safe havens could come under selling pressure.”

Euro/dollar was up 0.4% at $1.1968, close to $1.2004, its highest since Sept. 1. An index that tracks the dollar against a basket of currencies was down 0.2% at 91.74.

One of the biggest movers in the developed world was the Norwegian crown, which rose 0.5% against the dollar to trade at 8.8435. The Swedish crown also rose 0.4% at 8.5355. Both gained versus the euro, too, albeit by a smaller extend.

The British pound rose 0.5% against the dollar to a three-month high of $1.3409. It was last up 0.4% on the day.

The Australian dollar inched up 0.2%. The New Zealand dollar was close to breaking a more than two-year high above 0.7051, last rising 0.4% at 0.7038.

Traders will be watching for the final euro zone manufacturing PMI reading at 0900 GMT and an hour later for the flash inflation numbers for November. Economists polled by Reuters see inflation slightly subsiding.

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