Dollar on Backfoot as Trade Talks Buoy Asian Currencies

NEW YORK — The euro gained against the dollar on Tuesday after data showed improving German business morale, and as investors waited on comments from Federal Reserve Chairman Jerome Powell on Thursday about the U.S. central bank’s policy framework review.

A German business climate index rose more than expected in August as both manufacturing and services picked up steam, boosting hopes that Europe’s largest economy is set for a strong recovery following the massive coronavirus pandemic shock.

It is “another data point that helps keep the euro at this stretched level,” said Kit Juckes, macro strategist at Societe Generale.

The major focus for the dollar this week will be whether the Fed’s Powell signals that the U.S. central bank will shift its inflation target to an average. This would allow inflation to rise higher than previously before the Fed raises rates, which would be a further negative for the dollar.

“The expectation is that there might be a subtle shift in how much the Fed will be willing to tolerate higher inflation in the future,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

Rock bottom interest rates and concerns about a more dovish inflation policy have reduced the appeal of the U.S. currency, while a relatively high level of COVID-19 infections is also casting doubts on the speed of the U.S. economic recovery relative to other regions including Europe.

The euro <EUR+> was last up 0.33% on the day at $1.1826, after reaching $1.1965 on Monday, the highest since May 2018.

The dollar index against a basket of currencies <=USD> fell 0.21% to 93.08.

The dollar also weakened against riskier currencies, but gained against the safe haven Japanese yen after the United States and China said they are still committed to their Phase One trade deal.

The Australian dollar <AUD=> rose 0.29% to $0.7182.

The greenback rose 0.47% against the yen <JPY=> to 106.47 yen.

Credit: Source

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