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Dollar Bounces Off a Two-year Low

The dollar edged higher in early European forex trading on Tuesday. It bounced off a two-year low, ahead of a Federal Reserve meeting. This was amid hopes for a prompt delivery of the next U.S. fiscal rescue package.

At 3:10 AM ET (0710 GMT), the Dollar Index was up by 0.2% at 93.810. It was recovering from the 93.448 low last seen in May 2018. USD/JPY rose by 0.2%, at 105.58, GBP/USD fell by 0.1%, at 1.2868.

These gains came ahead of the Fed meeting on Tuesday’s and Friday’s deadline for the U.S. Congress to extend unemployment benefits. Both of these are unpredictable enough for traders to seek temporary refuge in the safe haven.

Republicans unveiled their latest $1 trillion stimulus package on Monday but this doesn’t leave much negotiating time. A time for negotiation could be used to see whether a compromise between this plan and the Democrats’ $3.5 trillion proposal can be reached. And this should all happen before some of the earlier measures expire at the end of the week.

That said, the bar for any reversal in the dollar decline seems to be set rather high. That was according to analysts at ING.

A Pause in U.S. Jobs Recovery

In forex, the dollar now faces a mix of geopolitical tensions and uncertainty about the U.S. economic recovery. That was after the European summit led to rises in the euro and cyclical currencies vs the U.S. dollar.

The durable goods release came in better than expected Monday. But Covid-19 cases have increased throughout many of the more populous states in the U.S. This has resulted in a pause in U.S. jobs recovery.

This is something the U.S. central bank will consider in its two-day meeting.

ING added they expect the Fed to keep an accommodative stance in place. Particularly so, given the recent rise in the US Covid-19 cases and accompanying downside risk to the U.S. economic outlook.

Forex news reports that the EUR/USD was down by 0.2%, at 1.1733.

Analysts at Danske Bank said they continue to see upside in the cross. Although their 1M forecast has already been reached, looking for 1.1815 (Sep-18 high).

On top of concerns about U.S. growth, virus development, and tensions with China, as Danske Bank said, the tailwind for EUR/USD is the result of better news out of the euro area.

Yesterday, a decent German IFO business confidence number added to the positive euro area picture. This is at a time while the forward-looking expectations index beat consensus by a wide margin, Danske Bank added.

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