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FOREX-Dollar rises as investors shy away from risk
Published at 25/01/2021 at 17:28

* Euro-dollar slips after German business moral survey

* Risk-sensitive Aussie slips

(New throughout, updates prices, market activity, comments to U.S. market open; previous LONDON)

By Saqib Iqbal Ahmed

NEW YORK, Jan 25 (Reuters) - The dollar advanced to a near one-week high against a basket of currencies on Monday, as a burst of volatility in stock markets around the globe sapped investors' appetite for riskier currencies.

Major U.S. stock indexes each briefly traded more than 1% lower late morning before recovering to trade just moderately lower, led by declines in the Dow .

"That is spilling over into FX markets," said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

"Your high beta currencies - currencies that are highly correlated with equity markets and global risk appetites are tumbling in synchrony with equity indexes," Schamotta said.

Market sentiment had turned more cautious at the end of last week as European economic data showed that lockdown restrictions to limit the spread of the virus hurt business activity, dragging stocks lower.

The U.S. Dollar Currency Index was 0.166% higher at 90.379, after rising as high as 90.523, its strongest since Jan. 20.

The euro was down around 0.25% against the dollar. German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in Europe's largest economy, which will stagnate in the first quarter, the Ifo economic institute said on Monday.

The Australian dollar - seen as a liquid proxy for risk - was 0.16% lower against the dollar.

U.S. stocks have scaled new highs in recent sessions even as concerns about the pandemic-hit economy remain. Investors are trying to gauge whether officials in U.S. President Joe Biden's administration could head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive.

Despite the dollar's recent rebound - the dollar index is up about 1.3% since early January - analysts expect a broad dollar decline during 2021. The net speculative short position on the dollar grew to its largest in 10 years in the week to Jan. 19, according to weekly futures data from CFTC released on Friday.

The U.S. Federal Reserve meets on Wednesday and Fed Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed's massive stimulus any time soon - news which could push the dollar down further.

Sterling strengthened on Monday against the weaker euro as Britain's COVID-19 vaccine rollout over the weekend offered support to the British currency.

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(Reporting by Saqib Iqbal Ahmed; Editing by Andrea Ricci)

((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 646 223 6054; Reuters Messaging: saqib.ahmed.thomsonreuters.com@reuters.net))