The greenback starts the new week on a minor note, shedding about 0.1% and trading at 90.32 points.
Risk sentiment is still the dominant factor for the USD.
In the absence of significant fundamental drivers, hopes for increased government support for the American economy and continued vaccination against COVID-19 in the world are reducing investor interest in the protective dollar.
On Saturday, the U.S. Senate acquitted former President Donald Trump through impeachment proceedings. Investors believe that Congressmen can now fully focus on fiscal stimulus.
It is clear that the American economy still needs support. This was indicated by weaker-than-expected weekly US unemployment claims data released on Thursday, as well as the University of Michigan consumer confidence index released Friday, which slipped to 76.2 points in February, reaching the lowest level in the last three months.
The $1.9 trillion COVID-19 relief package announced this week by US President Joe Biden will move to the next stage when the House Budget Committee gathers all of its components into a single piece of legislation.
House Speaker Nancy Pelosi hopes that work on the package can be completed by the end of February.
Meanwhile, market participants continue to debate how the adoption of the next package of fiscal stimulus in the US will affect the dollar.
Some analysts believe that this will strengthen the dollar as it should accelerate the recovery of the United States relative to other countries, while others believe that it will contribute to global reflation, which should lift riskier assets at the expense of the USD.
"Although the greenback downward trend remains the dominant theme in the foreign exchange market, there is a possibility of a short-term appreciation of the dollar in the future due to the outstripping economic indicators in the United States," said the Commonwealth Bank of Australia experts.
Analysts at TD Securities are of the same opinion.
"The idea that the US economy will recover faster than anywhere else, thanks to the relatively successful introduction of vaccines, could drive the dollar up broadly over the next four to six weeks. But then other G-10 countries will catch up with the introduction of vaccines, which will allow the global economy to recover in the second half of the year," they said.
The main currency pair was trading in a narrow range on Monday, staying at two-week highs amid a thin market.
US exchanges are closed for President's Day, while China is still celebrating New Years.
Therefore, traders focused on the macroeconomic statistics of the euro area.
Thus, in December the volume of industrial production in the region decreased by 1.6% on a monthly basis, and by 0.8% on an annualized basis. Analysts were expecting a decrease in the indicator by 1% and 0.3%, respectively. At the same time, the foreign exchange trade surplus in December increased to €29.2 billion from €25.8 billion recorded in November.
There is reason to believe that economic recovery in the EU will depend more on export demand than on domestic efforts.
At the same time, the euro should stay relatively well against the USD if the global recovery proceeds at a steady pace.
So far, the peak levels of late January are limiting the growth of the main currency pair, while the lows since the beginning of the year act as reliable support.
A rise above 1.2190 should ease selling pressure and retest this year's highs at 1.2350.
Meanwhile, a drawdown below 1.1950 will confirm the bearish sentiment of the pair and aim for 1.1800.