Dollar set for biggest weekly drop in a month before U.S. data

[July 02, 2020] By Saikat Chatterjee

LONDON (Reuters) - The U.S. dollar slipped to a one-week low against its rivals on Thursday as upbeat U.S. and European economic data sharpened risk appetite, with hopes for a COVID-19 vaccine breakthrough also helping sentiment.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White

Against a basket of currencies <=USD>, the greenback is on track for its biggest weekly drop in a month, of 0.5% with the rise in coronavirus cases in the U.S. weighing on sentiment.

Data due at 1230 GMT is expected to show non-farm payrolls figures increased by 3 million jobs last month before a long holiday weekend. U.S. markets are shut on Friday.

A larger than expected gain could help the dollar regain some ground.

Estimates vary widely amid concerns about whether the U.S. economy can sustain its recovery as coronavirus infections surge and some states reimpose limits on business and personal activity.

"A renewed significant fall in the unemployment rate would make the market feel confident about a recovery," said Thu Lan Nguyen, an FX strategist at Commerzbank in Frankfurt.

"In that case we would see risk-on, which should theoretically be negative for the U.S. currency since the U.S. dollar has been in demand as a safe haven during the crisis,"

Despite the dollar's recent spell of weakness, the greenback is still up 2.5% from the 2020 low of 94.6 it hit in early March. A Reuters poll predicts more weakness for the greenback over the next 12 months due to weak global demand.

Supporting sentiment in the meantime was news that a COVID-19 vaccine developed by German biotech firm BioNTech <BNTX.O> and U.S. pharmaceutical giant Pfizer <PFE.N> had shown potential in early-stage human trials.

U.S. manufacturing activity also rebounded more than expected in June, with the Institute for Supply Management's manufacturing activity index hitting its highest in 14 months.

Similar surveys from China, Germany and France all pointed to an improvement in factory activity.

The positive risk sentiment boosted other risk-oriented currencies such as the New Zealand dollar <NZD=D3>, which gained nearly 0.5% versus the greenback, and the euro <EUR=EBS>, which advanced 0.1% to $1.1264.

The mood also lifted sterling <GBP=D3> above $1.25 for the first time in a week. It last sat at $1.2482, having bounced almost 2% from a one-month low hit on Monday.

Falling volatility also boosted sentiment, with a gauge of currency market volatility <.DBCVIX> holding near a one-month low.

(Graphic: USD positions, https://fingfx.thomsonreuters.com/
gfx/mkt/xegpbmllrvq/USD%20positions.JPG)

(Reporting by Saikat Chatterjee; Editing by Jan Harvey and Alexandra Hudson)

[© 2020 Thomson Reuters. All rights reserved.]

Copyright 2020 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.