Dollar strengthens as vaccine, stimulus hopes dim

By Chuck Mikolajczak

NEW YORK (Reuters) - The U.S. dollar strengthened on Tuesday as investors turned cautious after a Johnson & Johnson COVID-19 study was paused and as hopes dimmed that a fiscal stimulus package could be reached before the presidential election.

Major equity averages were lower, partly due to a decline in J&J (NYSE: JNJ) shares after the company paused its study due to an unexplained illness in a participant, dampening optimism about a vaccine. Eli Lilly (NYSE: LLY) also said its clinical trial for a COVID-19 antibody treatment was paused.

U.S. consumer prices rose 0.2% in September, matching expectations, for a fourth straight monthly climb, though the pace has slowed amid considerable slack in the economy as it slowly recovers from a nadir caused by coronavirus shutdowns.

The dollar index <=USD> rose 0.528% against a basket of other currencies, putting it on track for its biggest daily percentage gain in three weeks.

The U.S. currency's safe-haven appeal has been curbed by growing expectations that a win by former U.S. Vice President Joe Biden on Nov. 3 would bring large stimulus for the pandemic-hit economy, bolstering the stock market and investor risk appetite.

"It’s becoming increasingly evident to people that there is no stimulus coming before the election," said Erik Nelson, a currency strategist at Wells Fargo in New York.

"I wouldn’t say markets were fully pricing stimulus or fully pricing a vaccine by the end of the year but they were probably tilted towards the more positive side of those expectations."

The greenback has held within a range of about 2% over the past three weeks as talks on a fiscal deal have progressed in fits and starts. Majority Leader Mitch McConnell said the Republican-led U.S. Senate would vote on a scaled-down coronavirus economic relief bill of the type Democrats have rejected as they hold out for trillions in aid.

The euro was down 0.59% to $1.1745 while the Japanese yen weakened 0.17% versus the greenback.

Sterling was last trading at $1.2938, down 0.96%, after climbing above the $1.30 mark for the first time in a month on Friday as Britain's unemployment rate rose by more than expected to 4.5% in the three months to August.

In addition, as a deadline draws closer, British Prime Minister Boris Johnson told his top cabinet ministers on Tuesday he wanted a free trade deal with the European Union on the right terms but ending the year without one held "no fear."

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Currency bid prices at 2:54PM (1854 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1745 $1.1815 -0.59% +4.76% +1.1815 +1.1730

Dollar/Yen 105.4850 105.3550 +0.15% -2.86% +105.6200 +105.2900

Euro/Yen 123.88 124.40 -0.42% +1.58% +124.4700 +123.8100

Dollar/Swiss 0.9146 0.9092 +0.61% -5.47% +0.9155 +0.9091

Sterling/Dollar 1.2937 1.3066 -0.99% -2.47% +1.3067 +1.2922

Dollar/Canadian 1.3140 1.3109 +0.24% +1.15% +1.3146 +1.3100

Aussie/Dollar 0.7153 0.7211 -0.81% +1.94% +0.7210 +0.7151

Euro/Swiss 1.0741 1.0738 +0.03% -1.02% +1.0745 +1.0726

Euro/Sterling 0.9077 0.9040 +0.41% +7.37% +0.9081 +0.9020

NZ 0.6641 0.6647 -0.09% -1.31% +0.6670 +0.6630

Dollar/Dollar

Dollar/Norway 9.2420 9.1545 +1.03% +5.44% +9.2465 +9.1390

Euro/Norway 10.8564 10.7914 +0.60% +10.35% +10.8598 +10.7769

Dollar/Sweden 8.8268 8.7884 -0.20% -5.57% +8.8294 +8.7569

Euro/Sweden 10.3672 10.3884 -0.20% -0.97% +10.4100 +10.3307

(Reporting by Chuck Mikolajczak; Editing by Sonya Hepinstall)

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