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Virus scare brings dollar near year high as ECB escalates

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SINGAPORE – The dollar stood on the brink of fresh year-to-date highs on Wednesday, as mounting virus worries fueled gains built on expectations of higher interest rates, with investors are waiting for the European Central Bank for their next signal.

The euro hit its lowest level since April on Tuesday and was at $1.1772 in Asia, not much higher than the year’s nadir of $1.1704. It could find support if the ECB fails to meet expectations of a dovish adjustment to rate guidance at its Thursday meeting. But if that is delivered, it could pave the way for further weakness.

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“The implication is that monetary policy by the ECB will remain extremely easy for much longer,” said Commonwealth Bank of Australia strategist Kim Mundy.

Other majors also struggled to bounce off multi-month lows that kept the pound, Canadian dollar, Australian and New Zealand under trading pressure during the Asian session.

“The US dollar looks to have plenty of support,” said Westpac analyst Sean Callow in Sydney.

The dollar index rose 0.1% to 93.033 and could test the March top of 93.439, Callow said, as the coin seems to find some help from the risk-off sentiment as the dollar falls, Callow said. investors worried and supported from expectations of rate hikes when they failed to do so.

“The overall dollar mood looks like it’s going to take a lot to sort out the underlying narrative of the dollar being in pretty good shape from here to the Jackson Hole conference,” he added, referring to the dollar. to the August symposium in Wyoming, where the Federal Reserve could announce a reduction in its bond purchases.

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“For now, you probably just want to hold the dollar long for the next few weeks.”

Elsewhere, the Australian dollar has been hit by soft retail sales data and is expected to weaken further in the near term as much of the country goes into lockdown to slow coronavirus transmission. It was down 0.3% at $0.7310.

The New Zealand dollar hit $0.6913 and the Canadian dollar started to return to some of the gains it managed overnight.

The dollar steadied against the safe-haven yen, which is also gaining ground across the board amid growing concerns about a rise in global coronavirus infections and the impediment they could pose to economies. economy on the road to pandemic recovery.

The yen was last at 109.87 per dollar and 129.37 per euro.

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The seven-day average of daily new infections is the highest since May, and the corresponding average of reported deaths is also rising.

Sterling faces pressure as cases soar while Britain drops most of the social margins.

The British pound was last at $1.3616, below the 20- and 200-day moving averages and a fraction of Tuesday’s five-month low. The Singapore dollar also traded near an eight-month low on Tuesday after some restraint measures were reintroduced.

With a light data schedule on Wednesday, Thursday’s ECB meeting looks the biggest on the horizon. A dovish tone was expected after President Christine Lagarde heralded a guidance adjustment in an interview last week.

The ECB has announced a new strategy that will allow the bank to withstand inflation above its 2% target, and Lagarde said policy guidance will be reviewed to demonstrate the bank’s commitment to the new target.

“There is no change in ECB trend that is not enough to push the euro higher,” said analysts at ING. “At the same time, any shift by the ECB towards a dovish interpretation of the strategic assessment will underline the recent euro/dollar bearish bias.”

In the digital space, the cryptocurrency countered Tuesday’s losses to pull bitcoin from a one-month low and back to more than $30,000.

(Reporting by Tom Westbrook; Editing by Ana Nicolaci da Costa & Shri Navaratnam)

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https://financialpost.com/pmn/business-pmn/virus-scare-puts-dollar-near-years-highs-as-ecb-looms | Virus scare brings dollar near year high as ECB escalates

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