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Dollar Lowers Amid Economic Growth

The dollar weakened in early European forex trading on Wednesday. Traders were seeking riskier currencies, amid signs of economic growth rather than the increasing number of coronavirus cases.

At 3 AM ET (0710 GMT), the dollar index was down 0.1% at 96.595. That was from a high of 97.719 at the start of the week.

EUR/USD was up 0.1% to 1.1322, having been as low as 1.1167 on Monday. USD/JPY rose 0.1% at 106.60, off the six-week low of 106.06 seen earlier this week.

These moves came after the release of better than expected PMI data on Tuesday. These were in Europe, the U.K. and the U.S., which lifted sentiment.

Analysts at Danske Bank said the uptick in global PMIs was a key driver. It has caused the EUR/USD to jump nearly to 1.1330. 

These PMIs suggest the macroeconomic surprises are positive, which began with U.S. payrolls a while back. In their view, positive surprises will be enough to propel further USD weakness for a while longer.

This is true even if positioning data suggest EUR speculators are nearly stretched long. They forecast 1.15 over a three-month horizon.

The Dollar and Risk Sentiment

Forex news reports there’s also the Covid-19 virus to consider. The number of cases is mounting worldwide and several U.S. states are seeing record numbers of  infections.

Ray Attrill, FX strategy head at NAB said the dollar and risk sentiment are likely to remain broadly negatively correlated. It’s barring the United States from displaying clear and enduring leadership in the global economic recovery. This is something hard to square with the grim U.S. news on COVID.

That said, the sterling has struggled to post gains against the dollar in the FX markets. This is amid worries that the U.K. government is opening up the economy too quickly. 

Prime Minister Boris Johnson announced on Tuesday that pubs, restaurants, cinemas and hairdressers in England may reopen on the 4th of July. When it comes to health matters, the four countries that make up the United Kingdom are regulated separately. 

However, both the government’s chief scientific adviser and the chief medical officer stressed Mr.Johnson’s plan was not “risk-free”. 

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