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Dollar slips as U.S. stimulus hopes lift mood

FILE PHOTO: A picture illustration shows U.S. 100 dollar bank notes taken in Tokyo

By Tom Westbrook

SINGAPORE (Reuters) - The U.S. dollar nursed losses on Wednesday and the euro hung on to gains as investors' mood brightened in the wake of a better-than-expected sentiment survey in Germany and big spending talk from U.S. Treasury Secretary nominee Janet Yellen.

Yellen's comments, urging lawmakers to "act big" on coronavirus relief and not worry too much about debt, helped assuage this week's risk averse tone and knocked the dollar index from a one-month high.

The euro bounced off support around $1.2050, lifting about 0.4% on the dollar overnight to hit $1.2145, following a ZEW investor sentiment survey that beat forecasts and the Italian government surviving a confidence vote.

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It held near that level in Asia, and the risk-sensitive Australian and New Zealand dollars edged up in morning trade to also hold modest overnight rises. The Aussie was last up 0.2% at $0.7707 and the kiwi up 0.1% to $0.7122.

"The stimulatory bias of the incoming Biden administration's economic policy is again at the centre of market attention," ANZ analysts said in a note to clients.

"However, seesawing between expectations of reflation and current soft economic data will probably continue for a while longer," they added, limiting upside for currencies such as the kiwi.

Joe Biden is inaugurated as U.S. President at noon in Washington on Wednesday (1700 GMT), though traders are more focused on his policies than the ceremony.

The safe-haven yen was sold with the improvement in sentiment and briefly eased past 104 per dollar, as well as falling against other major currencies. It last traded at 103.84 per dollar.

Sterling found support from the Bank of England's chief economist's prediction that Britain's economy begins to "recover at a rate of knots" in the second half of the year, and extended overnight gains slightly to $1.3649.

The Chinese yuan clung to modest gains in offshore trade at 6.4757 to the dollar ahead of a monthly interest rate fixing where traders expect no change in either one-year or five-year loan prime rates.

Later on Wednesday Malaysia's central bank meets, with a decision due at 0700 GMT. Nine of 15 economists polled by Reuters expect it will cut benchmark interest rates to historic lows.

The Bank of Canada is expected to hold rates steady when it announces policy at 1500 GMT.

(Reporting by Tom Westbrook; Editing by Lincoln Feast.)