By Chuck Mikolajczak
NEW YORK (Reuters) – The dollar retreated from a two-month high against a basket of currencies on Monday as equities rallied after four straight weeks of declines ahead of a busy week of economic data and political developments in the United States.
A rebound in U.S. stocks at the end of last week helped slow the climb of the dollar, considered a safe haven, but signs of a slowdown in the nascent recovery from the pandemic and political uncertainties have kept investors on the defensive.
Major indexes on Wall Street were up more than 1% as stocks rebounded following four straight weeks of declines, the longest such streak for the S&P 500 <.SPX> and Dow Industrials (.DJI> in over a year.
“The dollar as of several months ago has been trading in tandem with the equity markets, when equities goes up, the dollar goes down,” said Axel Merk, president of Merk Investments and portfolio manager of the Merk Hard Currency Fund in Palo Alto, California.
“The dollar has been acting like a funding currency, basically when the world is reflating, when risk assets go up, when equities go up, then the dollar is weakening.”
The dollar index slipped as low as 94.155 <=USD> on the day and last fell 0.317%, on pace for its biggest daily percentage drop in about three weeks. The greenback reached a two-month high of 94.745 last week and posted its biggest weekly rise since early April. Against the yen, the dollar was more subdued at 105.45 yen <JPY=>.
Dollar hovers near 2-month high: https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxqkyevx/Pasted%20image%201601279387466.png
Sterling <GBP=> was last trading at $1.2849, up 0.89% on hopes Britain could secure a Brexit trade deal with the EU.
The euro <EUR=> gained 0.31% to $1.1666 after dropping to $1.16125 on Friday, its lowest in two months.
Even with Monday’s softening, Friday’s data on U.S. currency futures positions suggested the dollar had room to rise further, with speculators holding a big net short position in the currency which they could move to cover if the dollar moves higher.
Dollar shorts near 9-year high: https://fingfx.thomsonreuters.com/gfx/mkt/bdwvkklekvm/short_positions.png
U.S. Commodity Futures Trading Commission’s broad measure of dollar positioning showed speculators’ net short position rose to $33.989 billion last week <NETUSDALL=>, up from $31.524 billion the week before and near its highest in almost a decade.
The flip side of that was a large net long position in the euro, which inched up last week to $27.922 billion <EURNETUSD=>.
Investor attention may now turn to the first U.S. presidential debate on Tuesday.
Meanwhile, worries abound that the economic recovery is stalling as many stimulus programs have expired, curbing consumer spending. On Sunday, U.S. House Speaker Nancy Pelosi said she thought a deal could be reached with the White House on a fresh coronavirus relief package as talks continued.
This week will bring more data on the health of the world’s biggest economy, including consumer confidence on Tuesday, a manufacturing survey and consumer data on Thursday, and jobs figures on Friday.
(Reporting by Chuck Mikolajczak; Editing by Bernadette Baum)