Dollar hits 27-month low as U.S. stocks reach record highs - Reuters

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NEW YORK (Reuters) - The U.S. dollar index fell to its lowest in more than two years on Tuesday, as the ongoing effects of the Federal Reserve’s stimulus programs weakened the dollar broadly for the fifth consecutive day and lifted U.S. stock indexes to record highs.

FILE PHOTO: Rolled Euro banknotes are placed on U.S. Dollar banknotes in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

Although the dollar often functions as a safe-haven investment in moments of crisis, it has fallen dramatically since the Federal Reserve’s intervention into financial markets to maintain liquidity in the midst of the coronavirus pandemic. The Fed’s programs have pushed risk assets to all-time highs and reduced demand for safe-havens, even as economic data has painted a bleak picture of the U.S. recovery.

The dollar index =USD was last down 0.54% at 92.314, having earlier hit a bottom of 92.124, its lowest since May 2018. Against the euro EUR=, the dollar also hit its lowest since May 2018 at $1.197.

The dollar was also weaker against the Japanese yen JPY=, another traditional safe-haven, having hit a two-week low of 105.27 yen per dollar.

“It’s the Fed, it’s all the liquidity being pumped into the market,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, about the fall in the dollar.

A fresh rally in tech stocks provided a positive backdrop for markets and drove the S&P 500 index .SPX to a record high, topping the last record hit on Feb. 19 and further underlining the disconnect between the stock market and U.S. economic data. [.N]

Anderson noted that the Tuesday’s dollar weakness was not the result of any specific data release, but about a move lower that has been gaining momentum.

“Once U.S. dollar momentum becomes entrenched, it’s like trying to turn around an aircraft carrier, it is tough to do. And I think the momentum is entrenched,” he said.

Net bearish bets on the greenback rose to their largest since May 2011 last week, and spot trade in recent days suggests the position has only grown further since. [nL1N2FG1PH]

Real money and leveraged investors preferred to express their negative view on the dollar via the most-traded currency pair in the world - euro/dollar - pushing euro longs to a new record high in the week to Aug. 11, latest CFTC data showed.

Graphic: World FX rates in 2020 here

Reporting by Kate Duguid in New York and Olga Cotaga in London; Editing by Nick Zieminski

Our Standards:The Thomson Reuters Trust Principles.

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Dollar hits 27-month low as U.S. stocks reach record highs - Reuters
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