U.S. stimulus impasse takes steam out of dollar rebound

[August 12, 2020]  By Iain Withers

LONDON (Reuters) - The dollar struggled to hold recent gains on Wednesday as political wrangling over a stimulus package for the U.S. economy halted its recent rebound.

Investors are watching for any signs that a political impasse in Washington over a further rescue package for the pandemic-hit economy can be overcome.

The dollar, which has held above a two-year low hit on Thursday of 92.495, was down nearly 0.1% against a basket of currencies at 93.643 <=USD>, after shedding gains made in Asian trading.

"If there is no movement in the negotiations soon, the Fed's concerns are quite likely to have an impact on the dollar sooner or later," FX analysts at Commerzbank said in a note.

U.S. inflation figures due at 1230 GMT are expected to show consumer price growth drift down to 1.1% on a year-on-year basis, from 1.2% in June.

The dollar continued to make gains against the yen <JPY=EBS>, with the Japanese currency down nearly 0.3%, after slumping to 106.825 earlier, its lowest since July 24.

Improved U.S. debt yields have pressured the yen by luring investment from zero-yielding Japan.

A packet of former U.S. President Abraham Lincoln five-dollar bill currency is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. REUTERS/Gary Cameron

Sterling <GBP=D3> was flat, despite data showing the UK economy had entered a deep recession, as signs of a recovery in June provided some support for the currency.

The New Zealand dollar <NZD=D3> fell 0.6% to $0.6541, after the country's central bank held rates but surprised markets by extending its bond buying programme and putting a little more emphasis on the possibility of negative rates.

"Taken together, that's why interest rates have fallen a few basis points and why the kiwi fell," said Westpac FX analyst Imre Speizer. "That's a modest dovish reaction."

Graphic: World FX rates in 2020 https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/
0100301V041/index.html

(Reporting by Iain Withers, additional reporting by Tom Westbrook in Singapore and Eimi Yamamitsu in Tokyo, editing by Alexander Smith)

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