The dollar drifted lower in early European forex trading on Tuesday, recoiling from earlier highs as the stimulus plan progressed.
The Dollar Index was down 0.1% at 90.965 at 3:05 AM ET (0805 GMT). It previously pushed as high as 91.063 overnight for the first time since Dec. 10.
USD/JPY added 0.1% at 105.00 and EUR/USD gained 0.1% to 1.2066. It rebounded after dropping 0.7% on Monday, the most since Jan. 15. It followed the severe drop in German retail sales for December, while the AUD/USD fell 0.1% at 0.7611.
On late Monday, risk sentiment received a boost as Democrats filed a $1.9 trillion budget measure. It was a step toward bypassing Republicans on President Joe Biden’s Covid-19 relief package. This came even as a group of Republican senators visited the White House to discuss a scaled-back $618 billion alternative plan.
Indications that the turmoil in the equity markets was on the wane also helped. This was after retail traders ganged together to buy heavily-shorted stocks such as GameStop (NYSE:GME). It was at the expense of the hedge fund industry.
The whole turbulence surrounding this targeted attack on a hedge fund and its short position shivered across assets. It may have ignited one of the clearest de-grossing/de-leveraging weeks in a long time. This was according to analysts at Nordea in a research note.
On Monday, GameStop stock, which had been run up some 400%, slumped 30% and continued to drop in premarket trading Tuesday.
They may be tempted to buy into more risk assets again ahead of the re-opening during the spring. That is if they get a more convincing signal that this has indeed been a light positioning wash-out this week. This was an additional comment from Nordea.
Moreover, GBP/USD gained 0.2% to 1.3683. Sterling received a boost as the U.K. steps up its coronavirus vaccinations. That is to improve the chances of an economic rebound.
The U.K. has given shots of the Covid-19 vaccine to over 9 million people outpacing the U.S. and Europe.
As a result, markets have reduced their bets that the Bank of England will adopt negative interest rates. It will meet to discuss monetary policy on Thursday.
Meanwhile, the NZD/USD pair was up 0.27% to 0.7175 and the USD/CNY pair inched down 0.10% to 6.4603.