The dollar was on the defensive at a one-week low on Thursday, as robust U.S. data and fresh hopes for U.S. fiscal stimulus had investors confident enough about economic recovery prospects to seek out riskier currencies.
Republican President Donald Trump’s administration has proposed a coronavirus stimulus package to House Democrats worth more than $1.5 trillion, and hopes are rising that both parties will reach a compromise.
Along with strong U.S. labor and manufacturing data, that helped stocks to rally, and the mood pulled the dollar to a one-week low of 93.664 against a basket of currencies.
Early in the Asia session, the New Zealand dollar extended gains to a one-week peak of $0.6635. The Aussie rose to $0.7183, also the strongest in a week.
“The two sides have come a long way,” Westpac FX analyst Sean Callow said of the possible relief bill.
“The rhetoric is reasonably conciliatory; I think we’re getting closer,” he said, adding that an agreement would help the mood in equity markets and likely spill over into currency trade, boosting riskier currencies at the dollar’s expense.
At the same time, jobs figures that showed U.S. private employers stepped up hiring more than forecast last month and that Midwest manufacturing grew faster than expected also fed in to the positive sentiment.
Chinese data on Wednesday had also shown the recovery on track in the world’s second-biggest economy.
The yuan edged up to a week high of 6.7530 in offshore trade on Thursday, though volumes are thin and the onshore market is closed for holidays until October 9.
Nevertheless, firmness in the safe-haven Japanese yen indicated that plenty of underlying caution still remains. The yen held at 105.45 on Thursday, after climbing in the wake of a chaotic first U.S. presidential debate.
The yen ended its best quarter since mid-2019 on Wednesday with a 2.4% gain over the three months to September 30 as some of the exuberance in risk assets faded, particularly in September.
Gains in the euro overnight were also muted after European Central Bank President Christine Lagarde hinted that a strategy overhaul, and a more accommodative approach to inflation, could be possible.
The euro edged up 0.22% on Wednesday and held at $1.17248 on Thursday. The pound edged up to $1.2941.
Final purchasing managers index figures are due in Europe and Britain later on Thursday, followed by the ISM manufacturing survey in the United States and jobless claims data – all providing an update on the progress of the global coronavirus recovery.
Speeches from Bank of England Chief Economist Andy Haldane, at 1020 GMT, and ECB Chief Economist Philip Lane, at 1545 GMT, will also be closely watched for hints as to the next monetary moves.