* Dollar index down 0.4%
* Euro up 0.4% vs dollar
* Swiss franc hits highest in 5 years
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
London, July 27 – The dollar steadied early on Monday after reaching its lowest since September 2018 overnight, weakened by deteriorating U.S.-China relations and domestic economic concerns as U.S. COVID-19 infections showed no sign of slowing.
U.S. Secretary of State Mike Pompeo said Washington and its allies must use “more creative and assertive ways” to make the Chinese Communist Party change its ways.
With domestic economic concerns trumping its role as a safe-haven currency, the dollar index fell overnight to before steadying in early London trading. At 0736 GMT, the dollar index was at 94.054, down 0.3% on the day.
As COVID-19 infections show no signs of slowing in the U.S., investors are doubtful of a quick economic recovery. Nearly a quarter of the global total coronavirus deaths have been in the United States, where unemployment claims unexpectedly rose last week.
Some of the earlier steps to mitigate the financial impact, such as enhanced jobless benefits, are due to expire this month and Congress has yet to agree on fresh support.
“In the past the dollar was able to benefit from the U.S.-Chinese trade conflict. That is no longer the case now. What is at stake is no longer just trade. The US might be overstepping the mark with its policy towards China, just as with its measures against some European countries,” wrote Commerzbank analysts Ulrich Leuchtmann and Hao Zhou.
“If the dominance of the dollar in international trade and capital markets was to be reduced as a result, the USD weakness we are seeing at the moment would only be a very watered-down taste of things to come,” they added.
But Rabobank’s global strategist, Michael Every, said that the index is skewed by major constituent pairs such as dollar-yen and euro-dollar.
“This is mainly a DXY story driven by risk-on in EUR and risk-off in JP, and not a reflection of broader USD weakness over the year,” Every wrote. “We are just seeing some recent excess wound back – and the question is if it is temporary or not.”
The Federal Reserve meets on Tuesday and Wednesday. It could confirm recent hints about the benefits of an average inflation target, which would allow rates to stay lower for longer.
Safe-haven currencies were up against the dollar. The Japanese yen traded at a four-month high versus the dollar, at 105.575. The Swiss franc was up around 0.2% at 0.91855, having reaching a five-year high of 0.9167 overnight .
The euro continued its ascent after European Union leaders agreed a 750 billion-euro fiscal stimulus plan last week.
But European Central Bank board member Fabio Panetta warned that the danger to the euro zone economy is not over yet.
The euro hit a high of $1.17255 versus the dollar overnight – its strongest since September 2018 – but slipped back below $1.17 in early London trading.
It was weaker versus the Norwegian and Swedish crowns .
The riskier Aussie and Kiwi dollars were also up, even after a resurgence of COVID-19 infections in Asia. The state of Victoria in Australia reported the country’s highest daily increase on Monday, prompting authorities to warn that the six-week local lockdown may be extended.
The New Zealand dollar was up 0.4% against the weaker dollar at $0.6663. The Australian dollar was at $0.7123 . (Reporting by Elizabeth Howcroft; editing by Larry King)