LONDON, Dec 03 (Reuters) - The dollar index hit its lowest in more than two years on Thursday, while the euro held above $1.21, as signs of progress towards U.S. fiscal stimulus and optimism about COVID-19 vaccines kept investors upbeat even as the equity rally paused.
Lawmakers in Washington have failed to reach an agreement on economic stimulus to help relieve the impact of COVID-19 in the United States, but there were early signs that a $908 billion bipartisan proposal could be gaining traction.
Risk appetite was also boosted by optimism about recent developments towards the roll-out of COVID-19 vaccines. The UK approved Pfizer Inc's vaccine on Wednesday.
Although the rally in European equities paused for breath, as data underscored the economic damage caused by the pandemic, currency markets were still "risk-on".
The dollar fell, hitting as low as 90.834 versus a basket of currencies - its lowest since April 2018. At 1124 GMT, it was at 90.918, down 0.1% on the day.
Joel Kruger, market strategist at LMAX Group said the expectation of further stimulus meant that markets continued to look on the bright side.
"The market right now is focused on continuing to shrug off any downside risk and continuing to be fixated on any positive developments around the vaccine, around fiscal stimulus and, as things progress towards year-end, perhaps most importantly around messages and communications from the Federal Reserve and U.S. administration," Kruger said.
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