Dollar Edges Lower Ahead of Data
The dollar weakened in early European forex trading on Thursday. Traders were seeking out riskier currencies as a bet on economic growth, denting the safe-haven demand for the U.S. currency.
Analysts at Danske Bank said the USD took a broad-based dive yesterday, which continued overnight, particularly visible for EUR/USD. The pair was moving firmly above the 1.13 level and close to the peak from early June.
Lingering concerns about the spread of coronavirus could keep some currency pairs in a tight range. But the dollar’s losses in the FX markets are gradually increasing as sentiment favors riskier bets on long-term economic growth.
With that, focus will turn to the release of weekly U.S. unemployment data later in the session. Jobs trends have been better, as states and cities recover from Covid lockdowns. But some areas have now been compelled to slow down or reverse reopenings.
Initial jobless claims seem to be at 1.4 million for the week ending on July 3. It would be about the same the prior week.
Finance ministers from the eurozone are due to meet on Thursday. This is ahead of a summit of their leaders on July 17-18.
That is also amid optimism there will be an agreement allowing the proposed 750 billion euro recovery fund. The fund would be distributed to the economies hardest hit by Covid-19.
The Dollar and Other Currencies
Forex news reports that the sterling has also shown some strength, with the dollar close to a three-week low against the pound. Helping this move was the U.K. government’s announcement of its latest economic rescue plan. It is to the tune of 30 billion pounds ($38 billion).
GBP/USD was up by 0.3% to 1.2643, although the sterling was largely flat against the euro, at 0.8981.
That said, further gains may prove tricky, against the single currency in particular.
Analysts at ING said the announced measures today do not significantly alter their U.K. growth outlook. With the overriding GBP driver (U.K.-EU trade negotiations) still looking fairly uncertain, more gains in the GBP are unlikely.
They see EUR/GBP moving towards 0.92 within three months. The insufficiency of anticipated progress in UK-EU trade negotiations should translate into further risk premium being built into the currency.
Elsewhere, the USD/CNY pair fell by 0.2% to 6.9878. The Chinese yuan was boosted by better-than-expected inflation data for June.
Producer prices are falling by 3% year-on-year. The decline in the PPI was smaller compared with the previous month’s drop of 3.7%.
This includes the 3.2% drop analysts had generally forecast. However, the USD/CNY pair is being supported most by the rally in Chinese stocks. This continued for an eighth straight day on Thursday.
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