Dollar bounces on strong data, index hits technical support

NEW YORK (Reuters) – The dollar bounced off an almost three-month low against a basket of currencies on Monday as data showed that U.S. business activity expanded at the fastest rate in more than five years in November, and after the index hit strong technical support.

FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

IHS Markit’s manufacturing and services sector purchasing managers’ indexes both topped even the most optimistic forecasts in a Reuters poll that predicted both would level off, offering a counterweight to data suggesting economic momentum was slackening after the third-quarter’s torrid rebound from an historic plunge last spring.

“The Dollar turned broadly higher in N.Y. on Monday, with the better Markit PMI outcomes providing the main driver,” said Ronald Simpson, managing director, global currency analysis at Action Economics.

The dollar index was last up 0.18% at 92.482, after earlier dropping to 92.013, the lowest since Sept. 1. The euro dipped 0.10% to $1.1844.

The greenback jumped 0.63% against the safe haven Japanese yen to 104.475 yen.

Stronger risk appetite dented the appeal of the U.S. currency early on Monday after AstraZeneca said that its COVID-19 vaccine could be about 90% effective and it would prepare to submit data to authorities around the world that have a framework for conditional or early approval.

A conclusive break on the dollar index below support at around 92 could usher in new weakness, analysts said.

Matthew Maley, chief market strategist at Miller Tabak said that he would wait for confirmation that any break is significant before assuming further weakness, but added that if the index does fall below 92 “in any meaningful way, it’s going to be very bearish for the greenback on a technical basis”.

Many analysts see the dollar as likely to underperform next year when global growth is expected to improve as vaccines against the novel coronavirus are rolled out.

“That spells dollar weakness for us given the dollar’s countercyclical characteristics,” said Vassili Serebriakov, an FX strategist at UBS in New York.

The British pound may be among the best performers against the greenback as it benefits from faster international growth and moves past Brexit worries that have weighed on the currency.

“We think sterling will benefit both from the global cyclical recovery as it tends to perform well in growth upswings and it will also benefit from moving closer to a Brexit deal, which we don’t think the market is fully priced for,” said Serebriakov.

Sterling was last 0.29% up at $1.3322. It was boosted by optimism over COVID-19 vaccines and as investors bet Britain and the European Union would clinch a Brexit trade deal.

The dollar index dipped slightly after the Wall Street Journal reported that U.S. President-elect Joe Biden plans to nominate former Federal Reserve Chair Janet Yellen to become the next Treasury Secretary.

Additional reporting by Elizabeth Howcroft in London; editing by Emelia Sithole-Matarise and Ken Ferris

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