FOREX-Dollar strengthens on U.S. economic outlook; euro dips below $1.20 – Yahoo Finance

* Dollar hits two-month highs vs euro, yen

* BoE in focus for sterling

* Euro briefly falls below $1.20

* Graphic: World FX rates

LONDON, Feb 4 (Reuters) – The dollar strengthened to two-month highs against the euro and yen, after data pointed to an improvement in the U.S. economic outlook, while risk appetite in global stock markets eased off.

U.S. Treasury yields ticked higher after ADP payroll data showed an increase in employment on Wednesday and ISM data showed services industry activity in the United States rose to its highest in nearly two years in January.

Dollar short positions are elevated, meaning that the dollar has room to rise when speculators quit those positions .

“We are not convinced that the US dollar’s current rebound will prove sustainable beyond the near-term,” Lee Hardman, a currency analyst at MUFG, wrote in a note to clients, citing the continued decline of U.S. real yields.

“In the near-term, though, there is still a risk that the US rebound can extend further following to heavy sell off at the end of last year,” he said.

“The relentless move higher in global equity markets has lost some upward momentum at the start of this year, which is creating a more supportive backdrop for the US dollar in the near-term. The slow initial roll out of vaccines in Europe is also creating some concern that it risks undermining the outlook for global recovery in 2021 and boosting the relative appeal of the US dollar,” he added.

At 0817 GMT, the dollar was at 91.298 versus a basket of currencies, up 0.2% on the day.

Bullish comments from U.S. Federal Reserve policymakers and renewed hopes for U.S. fiscal stimulus are also lending new impetus to reflation trades.

The Democratic-controlled U.S. House of Representatives approved a budget outline on Wednesday that would allow them to pass President Joe Biden’s proposed $1.9 trillion coronavirus aid plan without Republican support.

The euro briefly fell below $1.20 for the first time since Dec. 1.

“Short-term risks remain to the EUR/USD downside, given the positioning and slow pace of EZ vaccination,” ING strategists wrote in a note.

In the UK, the Bank of England’s meeting is in focus. Although no changes to monetary policy are expected, investors will be listening for comments on the economic recovery and the outcome of the bank’s consultation on negative rates.

Businesses in Britain have been hobbled by a third national lockdown and are grappling with post-Brexit barriers to trade with the European Union, after Britain left the bloc’s single market on Dec. 31.

At 0825 GMT, the pound was lower against the euro and down 0.5% against the dollar at $1.2580 — a 17-day low.

“For today, Sterling could benefit if the BoE maintains its critical stance on negative rates. However, with a view to Brexit we continue to see downside risks for Sterling,” wrote Commerzbank strategist You-Na Park-Heger in a note.

Elsewhere, the Australian dollar was up around 0.2% at 0.76320 versus the U.S. dollar. The Norwegian crown was down around 0.3%.

The yen was down around 0.1% against the dollar at 0836 GMT, at 105.180.

Bitcoin continued to climb, touching a 20-day high . Ethereum reached record highs above $1,600.

(Reporting by Elizabeth Howcroft, editing by Larry King)

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