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Dollar Sells Off, Strong Risk Sentiment

The dollar has sold off in early European forex trading on Wednesday. Riskier assets were in demand and investors looked for more fiscal stimulus amid signs of a global economic recovery.

The U.S. Dollar Index stood at 97.362, down 0.3%, falling to levels last seen in mid-March. Meanwhile, USD/JPY was largely flat at 108.67.

The EUR/USD traded 0.5% higher at 1.1220, above 1.12 for the first time since mid-March. This was in the hope policymakers will continue to support the eurozone.  That is despite the German government’s failure to agree on a second big stimulus package on Tuesday.

The region’s weakest economies are still struggling to recover from the measures used to combat the pandemic. Albeit, the gradual reopening of the European economy continued as Italy lifted its quarantine regulations for visitors. 

Dollar Weakens as Risk Sentiment is In Demand

The European Central Bank expects to increase its 750 billion euro  ($840 billion) Pandemic Emergency Purchase Program. It would probably be by around 500 billion euros. 

FX news reports Sterling has also posted gains against the U.S. dollar, up 0.5% at 1.2606. That was above 1.26 for the first time since mid-April, in sympathy with a rally in global equity prices. This was amidst steadily improving investor sentiment regarding the global exit from lockdown.

The U.K. and EU are still far from a solution to avoid a big disruption to trade. That is after the post-Brexit transition period ends at the end of the year. The two sides have started their last scheduled talks on the issue, and doubts remain about the likelihood of progress.

Earlier Wednesday, China’s services sector returned to growth last month for the first time since January, as data have shown.

In the FX market, the U.S.dollar, Chinese yen (USD/CNY) traded 0.1% higher at 7.1089. This was still off the 7.17 levels as tensions between the U.S. and China were at their peak.

In forex, the Australian dollar is often seen as a proxy bet on the strength of the Chinese economy. It rose 0.6% to fetch $0.6938, hitting a five-month high against the greenback. This is despite the country’s GDP falling 0.3% during the first quarter of 2020, a second straight quarterly contraction.

Meanwhile, Wall Street strategists say the dollar could be set for ‘dramatic’ falls, having dipped to nearly three-month lows. 

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