Euro beats yen, sterling as Brexit, U.S. stimulus boost risk appetite

NEW YORK (Reuters) - The euro was boosted on Monday as risk sentiment improved in the wake of Britain’s trade deal with the European Union and U.S. President Donald Trump’s decision to approve a new fiscal stimulus package.

Britain on Thursday clinched a narrow Brexit trade deal with the EU, just seven days before it exits one of the world’s biggest trading blocs in its most significant global shift since the loss of its empire.

“What we are seeing is a continuation of the pricing out of hard Brexit risk,” said Ulrich Leuchtmann, head of FX research at Commerzbank in Frankfurt.

Risk sentiment also improved after Trump on Sunday signed into law a $2.3 trillion pandemic aid and spending package, restoring unemployment benefits to millions of Americans and averting a federal government shutdown.

The euro gained 0.43% to 126.77 yen. It reached a seven-month high of 1.0892 against the Swiss franc, before falling back to 1.0858, up 0.04% on the day.

The single currency was down 0.09% against the U.S. dollar at $1.2209.

It gained 1.00% against sterling to 0.9077.

Sterling has underperformed since the Brexit deal was reached, with traders saying the news was likely priced in.

Also “I would argue that this is markets slowly but surely acknowledging that this is not an optimal deal for the UK,” said Andreas Steno Larsen, global chief FX and rates strategist at Nordea in Copenhagen.

“This is rather a very slim deal that merely avoids the cliff edge, but there are still large gaps that will have to be dealt with in 2021, and frictionless trade is not secured,” Larsen said.

The British pound dipped 0.66% against the U.S. dollar to $1.3447, and was holding below a two-and-a-half-year high of $1.3625 reached on Dec. 17.

Bitcoin climbed 2.74% to $26,695 but was below a record high $28,378 reached on Sunday.

“There is a lot of enthusiasm among (crypto) traders who truly believe in this asset class, and they know that the rally has only begun because we were only recovering losses for the past few years,” Naeem Aslam, chief market analyst at AvaTrade, said in a report.

The dollar gained 0.14% against a basket of currencies to 90.32.

Investors are betting the dollar will continue to decline - it fell more than 6% this year - on expectations the Federal Reserve will hold interest rates near zero and the U.S. economy will struggle to recover from coronavirus-related shutdowns.

Win Thin, global head of currency strategy at Brown Brothers Harriman, expects the dollar index to test its February 2018 low of 88.25. Then “what happens to the greenback after that will largely depend on how well the U.S. controls the virus in 2021 as well as the outlook for further fiscal stimulus,” Thin said in a report.

The dollar slipped 0.16% against the Canadian dollar to $1.2848.