LDN - Business

Dollar gains further on worries ECB grew uncomfortable with euro rise

[September 03, 2020] By Olga Cotaga

LONDON (Reuters) - The dollar's bounce extended on Thursday as investors trimmed bets against the greenback and sold the euro on concerns that the European Central Bank was worried about its rise.

The surge has lifted the greenback about 1.3% above the 28-month low it hit against a basket of currencies on Tuesday.

Few analysts expect it to hold for too long, but the dollar gained broadly in Asia and, if sustained, this would be the first time it has climbed three sessions in a row since May.

After the euro touched $1.20 earlier this week, worries brewed in the market that the rise had come too fast and strong for the ECB's liking. Fears have intensified after a Financial Times report confirming those concerns.

ECB policymakers reportedly warned that if the euro keeps appreciating it will weigh on exports, drag down prices and intensify pressure for more monetary stimulus.

That followed remarks on Tuesday from ECB chief economist Philip Lane, who said the exchange rate "does matter" for monetary policy.

"Overall the comments suggest that an immediate policy response from the ECB to help weaken the euro appears unlikely, and they will rely more on jawboning to dampen euro strength for now," said Lee Hardman, currency analyst at MUFG.

A speech from ECB board member Isabel Schnabel at 1500 GMT will be closely watched for any comments on the currency.

"We may be approaching a phase where the ECB could curb the pace of euro appreciation, but...I have a serious doubt that this could send the euro materially lower," said Vasileios Gkionakis, global head of FX strategy at Lombard Odier.

"The dollar correction has yet to run its course," he said.

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A two Euro coin is pictured next to an English ten Pound note in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration

The euro was last down 0.4% at $1.1812 <EUR=EBS>, having slipped earlier in the session to a one-week low of $1.1789.

The dollar was up 0.3% against a basket of currencies at 92.99 <=USD>.

For about a fortnight now the dollar has been fighting to hold the line after dropping 10% from a March peak. As traders start to temper stretched bets on the euro, it could post its best week on the common currency in four months.

A stronger dollar helped push the British pound down 0.7% to $1.3263 <GBP=D3>, a six-day low, and the Norwegian crown lower by 0.5% to 8.90 <NOK=D3>. The Swedish crown followed suit.

Against the Japanese yen, the dollar also rose by 0.3% at 106.45, a six-day high <JPY=EBS>. And the Australian dollar fell 0.6% at 0.7293 <AUD=D3>.

The euro's slide was also justified by the euro zone's rebound from its deepest economic downturn on record faltering in August, with some countries in the bloc suffering more than others from restrictions imposed to limit the spread of the coronavirus.

Also, euro zone retail sales defied expectations of a rise in July and fell against June despite the lifting of COVID-19-related restrictions on economies, data showed on Thursday.

Traders will be watching for the initial jobless claims in the United States at 1230 GMT, which economists polled by Reuters expect lower for the week ending Aug. 29.

(Reporting by Olga Cotaga; Editing by Mark Heinrich and Alexandra Hudson)

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