Forex – Dollar Weakens Amid Signs of Economic Growth | AFS Finance Group

Forex – Dollar Weakens Amid Signs of Economic Growth

The dollar weakened in early European trade Wednesday, with traders seeking riskier currencies, latching more on to the signs of economic growth rather than the increasing number of coronavirus cases.

At 3 AM ET (0710 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 96.595, from a high of 97.719 at the start of the week.

EUR/USD rose 0.1% to 1.1322, having been as low as 1.1167 on Monday, while USD/JPY was up 0.1% at 106.60, off the six-week low of 106.06 seen earlier this week.

These moves came after the release of better than expected PMI data Tuesday in Europe, the U.K. and the U.S., which lifted sentiment.

“The uptick in global PMIs was a key driver of EUR/USD jumping nearly a figure to 1.1330,” said analysts at Danske Bank. ”These PMIs continue to suggest the macroeconomic surprises are positive (beginning with U.S. payrolls a while back). In our view, positive surprises will be enough to propel further USD weakness for a while longer, even if positioning data suggest EUR speculators are nearly stretched long. We forecast 1.15 on three month horizon.”

There’s also the Covid-19 virus to consider, with the number of cases mounting worldwide and with several U.S. states seeing record infections.

“The dollar and risk sentiment are likely to remain broadly negatively correlated, barring the U.S. displaying clear and enduring leadership in the global economic recovery, something hard to square with the grim U.S. news on Covid,” Reuters reported Ray Attrill, head of FX strategy at NAB, as saying.

That said, sterling has struggled to post gains against the dollar amid worries that the U.K. government is opening up the economy too quickly.

On Tuesday Prime Minister Boris Johnson announced that pubs, restaurants, cinemas and hairdressers in England will be able to reopen from 4 July. The four countries that make up the United Kingdom are regulated separately when it comes to health matters.

However, both the government’s chief scientific adviser Sir Patrick Vallance and the chief medical officer for England Professor Chris Whitty stressed Mr Johnson’s plan was not “risk-free”.

Additionally, a number of influential health leaders have signed an open letter published in the British Medical Journal Wednesday, warning that the U.K. runs a “real risk” of a second wave of coronavirus.

At 3 AM ET, GBP/USD was down 0.1% to 1.2513 and EUR/GBP was up 0.2% at 0.9046.

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