Dollar stalls as economic uncertainties linger
- 19th August 2020
- Posted by: Hakeem
- Category: Currencies, FOREX LATEST NEWS DAILY
TOKYO (Reuters) – The dollar edged slightly higher on Wednesday after slipping to 27-month low the previous session, but uncertainties about the U.S. economic recovery and a new fiscal stimulus package continued to weigh down the market.
The dollar hit fresh lows against most major currencies overnight as the Federal Reserve’s stimulus programmes weakened the greenback broadly and lifted U.S. stock indexes to record highs.
The dollar =USD was up 0.15% in Asian trade at 92.340 against a basket of currencies.
“There is a strong momentum for investors to want to sell the dollar,” said Juntaro Morimoto, an analyst at Sony Financial Holdings, noting that the greenback has been declining since last month.
The euro EUR=EBS changed hands at $1.19305, having strengthened to its highest level since May 2018 in the previous session.
Sony Financial Holding’s Morimoto said the market was swamped with “stretched long positioning on the euro,” which could weigh down the currency.
“However, dollar selling is the trend for now, so I think there’s enough room for the euro to accelerate its rise.”
Sterling GBP=D3 eased modestly from Tuesday’s eight-month high of $1.3241, and was last quoted at $1.3236.
Although the dollar often functions as a safe-haven investment in times of crisis, it has fallen since the Fed’s intervention into financial markets to maintain liquidity in the midst of the COVID-19 pandemic.
The Fed’s programmes have pushed riskier 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.
“While I don’t think the dollar will drop steadily, there’s a high possibility of a gradual weakening to continue,” said Minori Uchida, chief currency analyst at MUFG Bank.
Uchida said it was inevitable that U.S. rates would remain low for a prolonged period of time, mainly due to the pandemic.
“Yield curves in long and medium-term interest rates could then flatten,” he said.
An agreement over a new round of federal stimulusspending remained elusive, although U.S. House of Representatives Speaker Nancy Pelosi said on Tuesday that Democrats in Congress are willing to cut their coronavirus relief bill in half to get an agreement on new legislation with the White House and Republicans.
Providing additional headwind for the dollar, President Donald Trump on Tuesday said a big shift to mail-in voting in the November presidential election could cause so many problems officials might have to re-do the vote.
Separately, the market showed limited reaction to Democrats formally nominating Joe Biden for president. Biden vowed his election would repair a pandemic-battered America.
On the data front, Japan’s exports fell 19.2% in July from a year earlier, while the country’s core machinery orders fell 7.6% in June from the previous month.
Against the yen JPY=, the dollar last traded at 105.55 yen.
Investors are awaiting the release later on Wednesday of the minutes from the July 28-29 FOMC meeting, with speculation the Fed will adopt an average inflation target, which would seek to push inflation above 2% for some time.
Elsewhere in currency markets, the yuan CNH=D3 firmed 0.12% higher to 6.9165 per dollar, after hitting a five-month high on Tuesday at 6.9246.