LDN - Business

Dollar strengthens, riskier currencies fall before U.S. jobs data

[August 06, 2020] By Elizabeth Howcroft

LONDON (Reuters) - The dollar strengthened on Thursday as risk appetite faded, with jobs data due in the United States and lawmakers in Washington still unable to agree on a new financial aid package.

Risk appetite had grown on Wednesday after ISM data in the United States showed new service industry orders jumped to a record high. But the data also showed that hiring declined, suggesting a labour market recovery is faltering.

The dollar fell against a basket of currencies overnight, reaching a two-year low of 92.495 at 0608 GMT, then picked up by 1001 GMT to trade 0.1% lower on the day at 92.821 <=USD>.

Euro-dollar reached a two-year high of $1.1916 towards the end of the Asian session before slipping back to $1.1859 <EUR=EBS>. The euro was boosted by PMI data on Wednesday that showed the euro zone economy starting to expand.

Analysts worried that programmes to support the economy, such as unemployment benefits, are covering up the underlying damage to the economy.

"We are deluding ourselves stimulus to shield us can be sustained forever everywhere. It can’t," wrote Michael Every, global strategist at Rabobank.

Investors were waiting for lawmakers to agree on a new package of government support for the United States. With no sign of an agreement in sight, Republicans and Democrats remained trillions of dollars apart.

Unemployment payments of $600 a week for the tens of millions of Americans who lost their jobs in the pandemic ran out last Friday. U.S. labour market data is due at 12.30 GMT.

"Today's jobless claims report will be closely watched: should initial claims fail to re-enter a downward pattern, the dollar may be set for another leg lower," wrote ING strategists.

The United States' said it was stepping up its campaign against "untrusted" Chinese apps in U.S. digital networks, in a further escalation of U.S.-China tensions, which contributed to investor caution.

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An employee counts U.S. dollar bills at a money exchange office in central Cairo, Egypt, March 20, 2019. REUTERS/Mohamed Abd El Ghany

The offshore Chinese yuan, which hit a five-month high on Wednesday versus the dollar, weakened as the dollar rebounded and was at 6.9450 on Thursday <CNH=EBS>.

The riskier Aussie and Kiwi dollars strengthened overnight but fell as the dollar started to recover <AUD=D3> <NZD=D3>.

Australia's second-biggest city, Melbourne, started a six-week total lockdown on Thursday, following a resurgence of COVID-19 cases.

The Swedish and Norwegian crowns fell versus the dollar, having changed direction after the Swedish crown rose to its strongest since mid-2018 at the end of the Asian session <SEK=D3>.

The Swiss franc rose against the euro and dollar as markets turned more cautious <EURCHF=EBS> <CHF=EBS>. Versus the dollar, it was at 0.90805, close to its highest in five years.

"The Swiss franc gained due to its safe-haven status and reaccelerating Swiss exports. Carry trades, which usually hurt the CHF, are unpopular given very low global policy rates," wrote Thomas Flury, head of FX strategies at UBS Global Wealth Management.

"A test of the support at 0.90 appears imminent. We see a high chance that profit taking will happen here and stop the current CHF rally," he said.

In emerging markets, Turkey's lira hit a record low against the euro and slid 2.7% against the dollar. Analysts warned of inflation and predicted state attempts to aid the currency would struggle.

(Reporting by Elizabeth Howcroft, editing by Larry King)

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