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U.S. dollar skids from four-week high; euro gains

NEW YORK (Reuters) - The U.S. dollar slid from a four-week high on Wednesday, led by losses against the euro after a news report said European Central Bank officials have become more confident in their outlook for the region’s recovery.

FILE PHOTO: Rolled Euro banknotes are placed on U.S. Dollar banknotes in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

The safe-haven greenback was also pressured by improving risk sentiment as U.S. stocks rebounded from a sharp sell-off and as higher crude oil prices prompted gains in commodity currencies.

Some analysts, however, expect the dollar to hold recent gains after a steep fall the last few months. Since the beginning of September, the dollar has risen 2% against a currency basket.

Citing euro area officials, Bloomberg News reported on Wednesday that the ECB’s upcoming projections for output and inflation will show only slight changes to the June outlook, with gross domestic product for this year to be revised higher.

The report, which came ahead of Thursday’s ECB monetary policy meeting, spurred euro buying.

“It seems like there is still strong optimism about a euro zone recovery,” said Edward Moya, senior market analyst at OANDA in New York. “It’s going to need more support, but things are not as bad as initially believed.”

In afternoon trading, the euro rose 0.3% against the dollar to $1.1805 EUR=EBS, which pushed the dollar index down 0.3% at 93.265. Earlier on Wednesday, the index advanced to a four-week peak of 93.664.

That said, Scotiabank chief FX strategist Shaun Osborne believes the dollar will remain firmer relative to the major currencies into the year-end, citing extreme bets against it in the speculative market.

“We can see the dollar well-supported, primarily because positioning has been quite heavily skewed, especially towards the euro,” Osborne said.

“I don’t think with this pullback in the euro, we have seen anywhere near tidying up those significant positions.”

He also said the dollar tends to rally ahead of a U.S. presidential election, at least since the 1980s.

Against other currencies, the dollar fell 0.5% to 0.9130 Swiss franc CHF=EBS.

The dollar rose 0.2% against the yen to 106.20 yen JPY=EBS. Earlier, the safe-haven yen gained after news of a delay in the roll-out of a COVID vaccine.

AstraZeneca Plc AZN.L said it paused global trials, including large late-stage trials, of its experimental coronavirus vaccine due to an unexplained illness in a study participant.

Sterling, meanwhile, briefly rose back above $1.30 after an EU statement said it would not suspend Brexit negotiations over the British government’s new internal market bill. The pound was last up 0.1% at $1.2992. [GBP/]

The pound earlier fell to a six-week low, as new legislation on Britain’s post-Brexit plans stoked fears that trade talks with the European Union would derail.

Commodity currencies, one of many barometers to gauge risk appetite, gained as crude prices rose and stocks advanced.

The Australian and New Zealand dollars rose against the greenback, both gaining 0.8% to US$0.7272 AUD=D3 and US$0.6669 NZD=D3, respectively.

The Canadian dollar CAD=D3 recovered against the U.S. currency, which fell 0.6% to C$1.3160, after the Bank of Canada held interest rates steady at 0.25% on Wednesday.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci and Dan Grebler

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