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The U.S. dollar index fell to its lowest in more than two years on Tuesday as the ongoing effects of the Federal Reserve’s stimulus programs weakened the greenback broadly for the fifth consecutive day and lifted U.S. stock indexes to record highs.

Although the dollar often functions as a safe-haven investment in moments of crisis, it has fallen since the Federal Reserve’s intervention into financial markets to maintain liquidity in the midst of the coronavirus pandemic. The Fed’s programs have pushed risk assets to all-time highs and reduced demand for safe-havens, even as economic data has painted a bleak picture of the U.S. recovery.

The dollar index was last down 0.55% at 92.308, having earlier hit a bottom of 92.124, its lowest since May 2018. Against the euro, the dollar also hit its lowest since May 2018 at $1.197.

The dollar was also weaker against the Japanese yen, another traditional safe-haven, having hit a two-week low of 105.27 yen per dollar.

“It’s the Fed, it’s all the liquidity being pumped into the market,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets, about the fall in the dollar.

A fresh rally in tech stocks provided a positive backdrop for markets and drove the S&P 500 index to a record high, topping the last record hit on Feb. 19 and further underlining the disconnect between the stock market and U.S. economic data.

Anderson noted that the Tuesday’s dollar weakness was not the result of any specific data release, but about a move lower that has been gaining momentum.

“Once U.S. dollar momentum becomes entrenched, it’s like trying to turn around an aircraft carrier, it is tough to do. And I think the momentum is entrenched,” he said.

Net bearish bets on the greenback rose to their largest since May 2011 last week, and spot trade in recent days suggests the position has only grown further since. Elsewhere in North America, the Canadian dollar strengthened to $1.315, its best versus the greenback since late January. The move came after Canadian Prime Minister Justin Trudeau appointed his close ally and deputy Chrystia Freeland as finance minister on Tuesday as he revamps pandemic recovery plans.

″(Bill) Morneau has been a very solid finance minister. In a lot of situations, to lose that would be a bit destabilizing. But in this particular instance, Chrystia Freeland has also done a remarkable job with her file,”

The dollar extended its fall to hit fresh lows against a range of currencies on Tuesday, after a triple blow of retreating yields, soft U.S. economic data and a dip in safe-haven demand exerted broad selling pressure.

The yuan firmed to 6.9246 per dollar, hitting a level unseen since March 9, despite the Trump administration flagging a further tightening of restrictions against Chinese tech gear maker Huawei.

Against the Swiss franc, the dollar fell more than 0.1% to fresh 5-1/2 year low of 0.9049.

“The background factor for the moves we’re seeing today is the overall weakness of the dollar,” said Shinichiro Kadota, senior strategist at Barclays.

“And the Swiss franc strengthened because of a euro-led decline in the U.S. dollar since July.”

The greenback is also poised to re-test multi-month or multi-year troughs against the euro, pound and Aussie made earlier in the month.

The euro last sat at $1.1891, just below a recent two-year high of $1.1916.

The Aussie rose 0.12% to $0.7225, near an 18-month top of $0.7242 hit on Aug. 7, as the Reserve Bank of Australia reaffirmed the outlook of steady policy.

The Aussie’s gains were capped by news China had begun an anti-dumping investigation into imports of wine from Australia.

Investors have been relieved by a delay in the review of the U.S.-China trade deal this week, which has left the agreement standing and reinforced a belief the trade relationship can hold even amidst conflict on multiple other fronts.

A fresh rally in tech stocks added to the positive mood, and together with a pullback in U.S. yields and a weak reading in a U.S. manufacturing survey has many traders sticking to their bearish convictions on the dollar.

Net bearish bets on the U.S. dollar grew to their largest since May 2011 last week and spot trade in recent days suggest the position has only grown further since.

“Extended short dollar positions risk a sharp pull back if the dollar downside stalls further, but for now the negatives for the dollar are mostly still in place,” said analysts at Singapore’s OCBC Bank.

“We are reduced to staying in the game while the music is playing.”

On the data front, the New York Fed’s Empire State business conditions index tumbled to 3.7 in August from 17.2 in July – far lower than the 15 points forecast by a Reuters survey.

Delinquency rates for residential mortgages also posted the largest quarterly increase on record.

“A high delinquency rate for an extended period can impair the banking system,” said Commonwealth Bank of Australia currency analyst Joe Capurso.

“An impaired banking system could hold back the U.S. economic recovery like it did in the aftermath of the (2008 crisis),” he said.

The Japanese yen rose back past 106-per-dollar to 105.63 after a 2.6 basis point drop in benchmark U.S. 10-year government bond yields overnight.

The British pound last sat at $1.314 as investors watch the latest round of Brexit negotiations, with the future of London’s financial institutions’ access to the European market in focus.

Against a basket of currencies the dollar sat at an eight-session low of 92.634.

Among G10 currencies, the kiwi was the laggard as New Zealand’s largest city remains under lockdown and anticipation of future monetary easing weighs on the currency.

It last bought $0.6545 and traders said bets on the kiwi dropping had supported the Aussie as investors sought exposure to the Aussie/kiwi cross, which is trading at a two-year peak.

“The move has been one way traffic,” said Chris Weston, head of research at Melbourne broker Pepperstone, who is holding for the ride even though the pair has hit his price target of NZ$1.10 per Aussie.

Review delay

Election delay

The dollar steadied on Friday as a jump in U.S. bond yields and a drag on sentiment from lackluster Chinese economic data put the brakes on a selldown of the world’s reserve currency.

China’s retail sales unexpectedly extended their fall into a seventh month in July and industrial output missed expectations – suggesting bumps in even the world’s most promising rebound.

The mood had the dollar within reach of snapping a seven-week losing streak against the risk-sensitive Aussie, which has settled around $0.7149 and is flat for the week.

Tepid demand in a long-dated U.S. government bond auction on Thursday has also extended a surge in Treasury yields that has drawn some investors – especially from Japan – back to dollars.

The yen is on course for its weakest week against the dollar in two months and is down about 0.9% at 106.84 from last Friday’s close.

The biggest loser has been the kiwi, which was pressured at $0.6538, as the country faces a fresh coronavirus outbreak and after the central bank this week flagged increased bond buying and again mentioned the prospect of negative rates.

“Risk sentiment is slowing down,” said Westpac FX analyst Imre Speizer.

“It’s too early to say the whole (dollar) downtrend is over…but it’s got potential and at the very least it’s putting a cap on the Aussie and kiwi.”

Troubling signs also emerged on the health front in Asia, with 29 new cases in previously virus-free New Zealand prompting an extension of Auckland’s lockdown and the biggest daily jump in new cases in South Korea since March.

Against a basket of currencies the dollar remains 0.2% lower for the week, but it has appeared to arrest a slide that has it about 9.5% below its March peak.

Divergence
Preliminary European employment and GDP numbers due at 0900 GMT and U.S. retail sales figures at 1230 GMT are the next set of data for investors to parse for signs of divergence between the U.S. and European recoveries.

Gathering faith in Europe’s rebound, and doubts in the United States as the virus spreads and politicians remain deadlocked over the next relief package, have kept the euro firm even as the dollar has been able to bounce a bit elsewhere.

A fall last week in the number of applications for unemployment benefits in the United States to below one million was welcome surprise, but with some 30 million out of work and stimulus plans stalled the outlook remains grim.

The euro hung on at $1.1816 in the Asia session on Friday and the pound was also steady at $1.3062, as investors have sought to focus on a rebound in growth in June rather than the diabolical quarterly contraction.

Another element of divergence has opened up in the Tasman Sea, where central banks on either side – in Australia and New Zealand – are striking quite a different tone.

The Reserve Bank of New Zealand sparked a bond rally this week by promising to extend its own purchases and, next week, speed them up as well.

And while the RBNZ talked about sub-zero rates, Reserve Bank of Australia Governor Philip Lowe re-iterated on Friday that fiscal support was what’s needed.

″(The RBNZ) are pro-active,” said Chris Weston, head of research at Melbourne brokerage Pepperstone.

“And if they want something they don’t sit on their hands to see how things evolve, they make it happen, or at least they try. This to me is why AUD/NZD is likely going higher,” he said.

The Aussie last sat at a 22-month high of NZ$1.10941, having forged nearly 1% this week and the spread between Australian and New Zealand 10-year debt, at 28 basis points, is at its widest since May.

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.

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.

Divergence

The dollar slipped to two-year lows on Friday and is on track to post its biggest monthly decline in 10 years, as investors worried that a recovery in the U.S. economy would be hampered by the country’s struggle to stem the coronavirus epidemic.

Confidence in the U.S. currency was undermined further after U.S. President Donald Trump raised the possibility of delaying the nation’s November presidential election.

The dollar index fell to 92.597, a low last seen in May 2018, and is on course to post its steepest monthly fall since September 2010. It has fallen 4.9% so far this month.

“At the root of the dollar’s weakness is the fact, which was highlighted by Fed Chairman (Jerome) Powell the other day, that U.S. coronavirus cases started to increase in mid-June, curbing consumption and sending the economy downhill,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The virus is now spreading to U.S. Midwestern states even as numbers from Sunbelt states show some signs of improvement.

The economy has suffered heavily, with advance gross domestic product (GDP) data showing contraction of an annualised 32.9% in the second quarter, the quickest pace since the Great Depression.

High-frequency data suggests the economy is losing steam in recent weeks after a rebound from rock-bottom levels hit in April.

The U.S. Labor Department data showed initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending July 25, a sign that recovery in the employment market is stalling.

Washington is seeking to respond with further fiscal aid but partisan differences have so far hindered an agreement, just a day before a federal jobless benefit was set to expire, leaving investors nervous.

Democrats favor extending the extra $600-per-week in payments to those thrown out of work by the pandemic while Republicans want to slash it to $200 for fear of over-spending.

The U.S. government has already spent $3 trillion for pandemic stimulus while the Federal Reserve flooded the banking system with dollars through its aggressive easing policy.

“The U.S. has been quite prodigal and the market is starting to ask, who is going to pay the bills for all of this?” said Bart Wakabayashi, Tokyo branch manager of State Street Bank.

Rubbing salt into the dollar’s wound, Trump raised the idea of delaying the Nov. 3 U.S. elections, although the notion was immediately rejected by both Democrats and his fellow Republicans in Congress – the sole branch of government with the authority to make such a change.

“The mere suggestion by Trump of a delay does play to concerns that the election result will be challenged in November (should Trump lose), and that, because of the likely larger than usual share of votes via mail in ballots due to the pandemic, we might not now (get) the result on election night itself,” wrote Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Leading the charge against the U.S. dollar was the euro, which has gained traction after European Union leaders agreed this month to a 750 billion euro ($891.45 billion) economic recovery fund, taking on debt jointly in a major boost to regional cooperation.

The euro hit a two-year high of $1.1905 and last traded at $1.1883, having gained 5.8% so far in July, the biggest gain in a decade.

Against the yen, the dollar hit a 4 1/2-month low of 104.195 yen and last stood at 104.36, having lost 3.3% this month.

Likewise the British pound stood at $1.3122 after hitting a 4 1/2-month high of $1.3143.