Dollar treads water on Fed views, geopolitics

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LONDON (Reuters) – The dollar was little changed on Wednesday after U.S. retail sales rose more than expected in May, although caution kept investors from aggressively buying riskier currencies like the Australian dollar.

FILE PHOTO: U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration/File Photo

U.S. Federal Reserve Chairman Jerome Powell doused some of the market’s optimism on Tuesday with a rather bleak picture of the U.S. economy, while also reinforcing hopes for continued policy support.

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Discouraging news over the past 24 hours — record-high coronavirus infections in six U.S. states, clashes between Indian and Chinese troops in the western Himalayas and new coronavirus cases in Beijing — also undermined sentiment.

Against a basket of other currencies, the dollar edged 0.1% lower to 96.89. The index has bottomed out after reaching a three-month low last week, but the broad outlook remains pessimistic.

“Market players are looking to, with caution, how critical the impact from any second wave of infections on the economy will be,” said Kazushige Kaida, head of FX sales at State Street. “It’s not that markets are pessimistic… But the length of time people hold their positions is getting shorter.”

The Fed’s Powell said that a full U.S. economic recovery will not occur until the American people are sure the novel coronavirus epidemic has been brought under control.

That remains far from certain, with new coronavirus infections rising to record highs in six U.S. states, including populous Texas and Florida, on Tuesday.

China also sharply ramped up restrictions on people leaving Beijing on Tuesday in an effort to stop the worst coronavirus flare-up since February from spreading.

The Fed’s cautious message also checked the momentum in the euro, which held below a three-month high of $1.1422 reached last week. It was trading at $1.1286 on Wednesday after rallying nearly 5% since a Franco-German proposal for a recovery fund in late May.

Brexit developments continued to hobble the British pound. Sterling was steady around $1.2576, below a three-month high above $1.28 hit earlier this month.

Reporting by Saikat Chatterjee; additional reporting by Hideyuki Sano in Tokyo; editing by Larry King

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