* Dollar flat after rebounding on soft European data
* Concerns about the COVID-19 variant, vaccines dampen mood
* Dollar bears expect the Fed to reiterate its cautious stance this week
* Graphic: World FX Rates https://tmsnrt.rs/2RBWI5E
TOKYO, Oct. 23 / PRNewswire / – The US dollar stabilized on Monday after a recent decline as new concerns over the coronavirus and the global economy led investors to hold onto the safe haven currency.
However, analysts said the dollar could resume its fall if the US Federal Reserve reiterated its commitment to highly accommodative monetary policy at its interest rate meeting later this week – as widely expected.
« I don’t think the Fed has any incentives to curb its incentives at this point, although some market participants may try to look between the lines for signs of lowering, » said Kazushige Qaeda, head of foreign exchange sales at the state branch Street Bank in Tokyo.
« I think the dollar remains in a downtrend even though it is time for now, » he said.
Federal Reserve Chairman Jerome Powell is expected to signal that he has no intention of rolling back massive Fed stimulus anytime soon when the central bank completes its policy review on Wednesday.
The dollar index was at 90.172 and was unchanged for the day. It rebounded on Friday after hitting 90,043 on Thursday, its lowest level in the past week.
Economic activity in the euro zone contracted significantly in January as tight lockdowns to contain the COVID-19 pandemic hit the bloc’s dominant service industries hard, while UK data showed UK retailers struggled to recover in December.
British Prime Minister Boris Johnson also said Friday there was evidence that a new variant of COVID-19, discovered late last year, could be linked to higher mortality, while problems with some vaccine introductions also weighed on mood .
Downbeat coronavirus news overshadowed some bullish US data, including a surge in production and an unexpected spike in existing home sales.
According to analysts, bets are crowded against the dollar, and Friday’s US data shows that net dollar short positions have risen to their highest level since May 2011.
The euro has barely changed at USD 1.2174 and has paused after gaining 0.8% last week.
The common currency is constrained in part by signs of political instability in Rome, which has also boosted Italian bond yields. The yield distribution between Italian and German bonds reached its highest level since November on Friday.
Italy’s main governing parties on Friday identified early elections as the only way out of its political impasse if Prime Minister Giuseppe Conte fails to achieve a parliamentary majority after a vote of confidence.
The situation in Italy shows the widespread risk of political instability due to popular dissatisfaction as communities tire of the pandemic, some analysts said.
« The rally in stock markets during this pandemic is entirely dependent on fiscal expansion and central bank monetization of debt, » said Makoto Noji, chief currency strategist at SMBC Nikko Securities. « Political instability could delay fiscal measures. 2021 will not be the same as 2020. »
In Washington, the honeymoon following Joe Biden’s inauguration as president last week means investors are confident that at least part of his $ 1.9 trillion coronavirus relief plan will be implemented soon.
The second impeachment trial against former U.S. President Donald Trump, expected early next month, could complicate his efforts.
Elsewhere, the British pound stayed at $ 1.3684, not far from a 2-1 / 2-year high of $ 1.3745 hit Thursday, in part thanks to Britain’s lead on COVID-19 vaccinations was.
Against the yen, the dollar was unchanged at 103.76 yen.
(Reporting by Hideyuki Sano; Editing by Sam Holmes and Ana Nicolaci da Costa)