Dollar extends gains, Aussie lags, euro backtracks from
$1.20 high
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[September 02, 2020] By
Elizabeth Howcroft
LONDON (Reuters) - The dollar extended
overnight gains on Wednesday and the euro fell, retreating from the key
$1.20 level reached in the previous session, while the Australian dollar
lagged behind after the country confirmed its is in a recession.
The dollar strengthened overnight, helped by positive U.S. manufacturing
data and technical factors.
It extended gains in early London trading, then stabilised as the
morning progressed, with the dollar index at 92.586 at 1054 GMT, up 0.4%
on the day <=USD>.
Commerzbank analyst Thu Lan Nguyen said that, although the long-term
economic fallout from coronavirus is unknown, it is countries' relative
economic performance that drives exchange rates - in addition to
monetary policy developments.
"The U.S. dollar was able to benefit from significantly improved ISM
data yesterday which suggest a continued high-speed recovery, thus
increasing the likelihood that the U.S. might be able to overcome the
crisis comparatively better after all," she wrote in a note to clients.
The euro fell, down 0.4% at $1.18645 at 1055 GMT, backtracking from the
key $1.20 level it hit for the first time since 2018 on Tuesday <EUR=EBS>.
The euro has surged more than 10% since its low point in March and,
although it was unmoved by Tuesday's eurozone inflation data being
unexpectedly negative, investors took profits after European Central
Bank chief economist Philip Lane said that the euro-dollar rate "does
matter" for monetary policy.
"(Lane's comment) shows that the ECB is not ignoring what is happening
on the inflation front," said Kenneth Broux, FX strategist at Societe
Generale. "The risk is that if inflation undershoots the target, the
stronger the euro becomes.
"It’s interesting because it shows the ECB's being rattled by this
incessant appreciation of the euro, or decline of the dollar," he added.
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A U.S. Dollar banknote is seen in this illustration taken May 26,
2020. REUTERS/Dado Ruvic/Illustration
"What I would expect now is a bit more euro profit-taking before the ECB meeting
next week, because investors obviously are going to heed Lane’s comments now,"
he said.
Investors will now be looking to see if the ECB will follow the U.S. Federal
Reserve in shifting its policy towards inflation, as it reviews its monetary
policy, Broux said.
Along with the euro, the Australian dollar was a laggard among G10 currencies,
down 0.4% on the day at 0.7341 at 1108 GMT <AUD=D3>.
Worse-than-expected Australian gross domestic product data confirmed the
country's economy shrank 7% in the three months to June, putting it in its first
recession in nearly three decades.
The country was also hit on Tuesday by China's suspending barley imports from
Australia's largest grain exporter, adding to tensions between China and
Australia which, until recently, had left Australia's agricultural products
largely unscathed.
Risk currencies were little changed on the day: the Norwegian and Swedish crowns
were down 0.1% versus the dollar <NOK=D3> <SEK=D3>, while the New Zealand dollar
was broadly flat <NZD=D3>.
German retail sales fell unexpectedly, down 0.9% in July, missing a Reuters
forecast for a 0.5% increase and countering hopes that household spending could
drive a strong recovery from the coronavirus shock.
The spread of COVID-19 continues to limit activity, with Poland set to ban
direct flights from 44 countries, including Spain, Israel and Romania.
In the United States, there remain "serious differences" between Democrats and
the White House over proposed government aid.
(Reporting by Elizabeth Howcroft; editing by Christopher Cushing, Larry King)
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