Home 2020 August

Dollar clings to one-week high after weeks of losses

The U.S. dollar maintained its gains on Tuesday after rising to a one-week high against the euro as U.S.-China tensions and a stalemate in the U.S. Congress over fiscal stimulus supported safe-haven assets.

Congressional leaders and Trump administration officials said on Monday they were ready to resume negotiations on a coronavirus aid deal. It was unclear whether they could bridge their differences.

Meanwhile, China imposed sanctions on 11 U.S. citizens, including Republican lawmakers, following Washington’s sanctions on Hong Kong and Chinese officials.

And U.S. Treasury Secretary Steven Mnuchin said companies from China and other countries that do not comply with accounting standards will be delisted from U.S. stock exchanges as of the end of 2021.

Market response to the U.S.-China conflict has been limited, but analysts say the confrontations have longer-term implications.

Euro/dollar was last neutral at $1.1736, having fallen to $1.1722 earlier, its weakest since Aug. 4. Before that, the dollar had fallen for seven straight weeks, and it was due for a short-term corrective bounce, traders said.

“The market remains in the expectation that everything will turn out for the best in the dispute,” Commerzbank currency analyst Antje Praefcke said. But “an agreement has probably already been priced in accordingly, which means that the dollar has hardly any more upside potential.”

“The euro does not really have that much to offer these days, either … The bottom line is that with $1.19 we probably have seen the highs in euro/dollar for the time being, but at the same time there are no good reasons for levels below $1.16,” Praefcke said.

Market participants will be watching for the German economic Zew survey at 0900 GMT, which will show how Europe’s biggest economy has fared in August. Economists polled by Reuters expects that sentiment and conditions weakened.

The euro has been bolstered recently by views that the continent was outperforming the United States and handling the coronavirus pandemic much better.

Elsewhere, the Turkish lira stayed near Friday’s record low on concerns about the country’s dwindling foreign-exchange reserves, leading to expectations the central bank will take more decisive action to stem its fall.

The lira was quoted at 7.2785 per dollar, just above Friday’s record low of 7.3650.

The Norwegian crown, on the other hand, has flourished as oil prices rose, becoming the best performer so far this week alongside the Canadian dollar and the Russian rouble, according to MUFG analysts.

The crown was last up 0.3% at 9 to the dollar, boosted by Monday’s central bank report that showed Norges Bank was one of the least dovish G10 central banks. The Canadian dollar held at $1.33.

Dollar struggles to stem decline as investors fret over U.S. job recovery

The dollar struggled to stem its broad decline on Thursday as investors worried the U.S. economic recovery may lag other countries due to a high level of coronavirus infections while the global economy slowly gets back on its feet.

The dollar’s index against a basket of currencies edged down 0.1% to 92.719, having fallen more than 0.5% in the previous session to approach its two-year low of 92.539 marked last Friday.

“Dollar-selling seems to have resumed. We are having the same structure we saw in July,” said Shinichiro Kadota, senior strategist at Barclays.

Decline in the U.S. currency has gathered pace since late July on rising perception that U.S. economic recovery could be hobbled by the country’s poor performance in containing the COVID-19 outbreak.

The euro changed hands at $1.1874, having gained 0.5% in the previous day’s trade to stand just below Friday’s two-year high of $1.1908, extending its bull run since European leaders agreed on a recovery fund on July 21.

The common currency held an upper hand against the yen, trading at 125.27 yen, having hit its highest level since April last year in the previous session.

The U.S. currency traded at 105.52 yen, having eased a tad in the past two days.

The dollar extended losses on Wednesday after the ADP National Employment Report showed U.S. private payrolls growth slowed sharply in July, suggesting the labour market recovery was faltering.

U.S. services industry activity gained momentum in July as new orders jumped to a record high, but hiring declined, a separate survey by the Institute for Supply Management (ISM) also showed.

“Although the headline figure from the survey was strong, the employment component while ADP data was weak. These point to downside risks to Friday’s payroll data,” said Kadota at Barclays.

With more than 30 million people on jobless benefits, recovery in employment is seen as critical to the U.S. economic outlook, with many investors counting on another fiscal stimulus to support the economy.

Top congressional Democrats and White House officials appeared to harden their stances on new coronavirus relief legislation, however, as negotiations headed toward an end-of-week deadline with no sign of an agreement.

Sterling also edged near Friday’s 4-1/2-month high of $1.3170, last quoted at $1.3137.

The Bank of England looks set to hold off from taking further action at its policy review later in the day, by keeping its benchmark interest rate at an all-time low of 0.1% and its bond-buying stimulus program unchanged at 745 billion pounds ($980 billion).

The U.S. dollar sank to its lowest level in almost half a year against the Canadian dollar to C$1.3262.

The offshore Chinese yuan traded at 6.9423 per dollar, having hit a five-month of 6.9324 on Wednesday.

Gold was by far the best performer, hitting a record high of $2,055.3 per ounce overnight and last stood at $2,039.5, supported by demand for hedge against the dollar’s decline.

Dollar dented as yields dive on recovery worries

The dollar was under pressure on Wednesday from a towering euro and crumbling U.S. yields, as the latest coronavirus relief package got bogged down in Congress and investors braced for a bumpy ride to economic repair.

A hardening perception that the U.S. rebound is lagging Europe has buttressed the common currency just below a two-year high, helping it repel a bounce in the dollar this week.

The euro last sat at $1.1808, after twice testing support around $1.17, as focus turns to U.S. private jobs data due later in the day and the Washington stalemate.

The Japanese yen rose to 105.66 per dollar and gold soared above $2,000 an ounce as the bond market’s dim view of the U.S. recovery sent real yields further into negative territory and nominal yields close to record lows.

“Failure to agree a fiscal package has pushed back the U.S. dollar,” said Imre Speizer, FX analyst at Westpac in Auckland.

“So if they agree something in the next few days, see the dollar bouncing back,” he said. “But even if we get another leg to it, I think it is still dollar weakness for the rest of the year.”

White House negotiators on Tuesday vowed to work “around the clock” with congressional Democrats to try to reach a deal on coronavirus relief by the end of this week.

But lawmakers have allowed a $600-a-week unemployment benefit to lapse while they remain at loggerheads and the two sides still seem far apart. Treasury Secretary Steven Mnuchin warned that “we’re not going anywhere close” to the $3.4 trillion that Democrats have been seeking.

The Australian and New Zealand dollars edged ahead, to climb back towards multi-month highs hit last week. The kiwi also won support from an unexpected fall in unemployment and was last 0.3% stronger at $0.6639.

The Aussie rose 0.2% to $0.7172 and the pound, which has shrugged off the dollar’s bounce this week, was steady at $1.3080.

Divergence

The dollar has been sliding since March, as central bank liquidity measures and calmer markets have eased demand for the world’s reserve currency.

But its prime antagonist in recent weeks has been the euro, which in July posted its best month in almost 10 years against the greenback, as a Europe-wide fiscal package convinced investors that the bloc can manage an economic rebound.

Net long bets on the euro hit a record high last week as low yields dulled the dollar’s allure and many in the market are convinced the common currency has further to run.

The yield on inflation-protected 10-year U.S. debt is at a record low of -1.05% and nominal 10-year yields sit near their lowest since the height of the March panic, at 0.5118%.

Investors are already expecting a slowdown in U.S. hiring from private payrolls data due around 1215 GMT. But a disappointment would bode ill for broader payroll data due on Friday and underscore the apparent divergence between Europe and the United States.

Analysts at ING have also noted that equity investors have yet to really buy in to the European recovery story – and say a pile-in could provide even more support to the currency.

“Buy-side surveys suggest that investors are still heavily overweight U.S. equities, especially tech stocks, and are minded to rotate into the Eurozone and see the euro as cheap,” said ING’s global head of markets Chris Turner.

“If that rotation comes to pass … then euro/dollar may be a $1.25 story after all.”