* EUR lower and DXY higher, as Asia is dominated by cautious sentiment
* AUD and NZD soft; Fed and stimulus advances eyed
* Graphic: World FX Rates https://tmsnrt.rs/2RBWI5E
SINGAPORE, January 26 (Reuters). The US dollar rose on Tuesday as rising coronavirus cases and doubts about the speed and size of US incentives dampened positive sentiment among traders, while investors were also cautious ahead of the Federal Reserve’s policy review later this week.
US Treasuries held gains, Asian equity markets fell, and the cautious move into safer assets pushed the dollar index higher. The greenback rose 0.1% to 90,462, near a weekly high and near the middle of a range it held for most of the month.
The euro, which fell on Monday as German business morale collapsed, is also hovering between support around $ 1.2050 and resistance at $ 1.2215. It fell 0.1% to $ 1.2128.
The yen was stable at 103.71 per dollar. The risk-sensitive Australian dollar hit a weekly low and the New Zealand dollar fell 0.4%.
« Markets have come a long way in the hopes that COVID will go away and governments are spending a lot of money, » Westpac currency analyst Imre Speizer said.
« Both are stalling at the moment and so markets will stall too, » he said, adding that this left the Kiwi in a mode of « indecision » between $ 0.7150 and $ 0.7240.
« One of these has to be interrupted to give you the direction for the next few weeks, » said Speizer. The kiwi was last at $ 0.7174 and the Australian dollar up 0.4% to $ 0.7685. The pound sterling fell 0.2% to $ 1.3645.
The Chinese yuan was supported by tight liquidity. One-year onshore yuan forwards rose to its highest level of 2021, while the onshore spot price rose 0.1% to 6.4733.
Investors added to bets last week that the dollar’s month-long downtrend would expand, weighed down by US budget and trade deficits. Short dollar positions have reached their highest level in nearly a decade, according to last week.
But forex markets have hit a holding pattern as they wait to see if the Democrats’ big virus bailout can clear Congress and if COVID-19 vaccines can actually turn the tide on the pandemic.
U.S. Senate Majority Leader Chuck Schumer said Democrats could try to pass much of President Joe Biden’s $ 1.9 trillion spending package by a majority vote, but it’s not clear if they have the numbers to override Republican objections.
Global coronavirus cases are creeping up to 100 million, the global death toll has surpassed 2 million, and the introduction of vaccines is causing delays and disruptions in production.
However, drug maker Moderna said Monday that its vaccine was effective against new variants.
Investors braced themselves for weak US growth numbers later in the week and expect the Federal Reserve, which will meet for two days starting Wednesday, will continue to support the world’s largest economy.
« We expect the Fed to reiterate a cautious political signal, » MUFG currency analyst Lee Hardman said in a statement to customers.
« The Fed will likely reiterate that it is too early to talk about slowing the pace of quantitative easing … despite the increased likelihood of greater fiscal stimulus. »
In the cryptocurrency markets, a rally in Bitcoin on Monday had largely been unwound, declining 1% to $ 31,744.
(Reporting by Tom Westbrook Editing by Shri Navaratnam and Ana Nicolaci da Costa)