The dollar dropped on Wednesday, extending a recent slide, with persistent concern over the economic effects of coronavirus pressuring the US currency ahead of a Federal Reserve policy decision.
In mid-morning trading in London the dollar index, which tracks the buck against half a dozen peers, slipped 0.3 per cent, setting a new two-year low and leaving it down 3.9 per cent for July. The euro, pound and yen all advanced against the greenback on Wednesday.
“It is a slippery slope for global macro risk as the US economic data starts to show signs of moderation in the recovery path,” Citigroup foreign exchange analysts said in a note. “This is probably reflecting the move back to partial lockdown mode in some important states.”
The New York-based bank said it expected the Fed would remain “as accommodative as it can . . . lending an important weakening bias to the dollar”.
Global stocks were steady ahead of the US monetary policy decision and as Congress struggled to reach a deal on extending the country’s coronavirus relief package.
The European benchmark Stoxx 600 edged up 0.1 per cent on Wednesday in morning trading. Frankfurt’s Xetra Dax was flat, while the FTSE 100 in London gained 0.2 per cent.
Peter Schaffrik, global macro strategist at RBC, said the announcement by the Fed on Wednesday on its latest monetary policy meeting was unlikely to throw up anything groundbreaking.
Investors do not expect the Fed to resort to negative interest rates but some suspect it could turn to unconventional measures such as yield curve control or setting upper limits on short-term Treasury yields.
“In coming months we expect the committee to detail how the economy would have to evolve in order for it to become comfortable adjusting policy,” said Mr Schaffrik. “Perhaps [Fed chair Jay] Powell will provide some additional colour on what this might look like at his press conference.”
Hopes for a rebound in the world’s biggest economy have been hit by a resurgence in Covid-19 cases and doubts over the extent of additional support measures.
The US reported 1,121 coronavirus deaths on Tuesday, taking the seven-day average death toll above 1,000. The $1tn pandemic relief package proposed by Senate Republicans has encountered intense resistance from Democrats, who oppose cutting enhanced unemployment benefits from $600 a week to $200.
Futures markets tipped the S&P 500 to open 0.2 per cent higher when Wall Street begins trading later on Wednesday.
Investors also await clues on how industrial companies have coped during the pandemic crisis, with a slew of earnings due on Wednesday including Boeing, General Electric and General Motors.
In the Asia-Pacific region, Japan’s Topix index closed 1.3 per cent lower. China’s CSI 300 benchmark of Shanghai- and Shenzhen-listed stocks jumped 2.1 per cent and Hong Kong’s Hang Seng rose 0.5 per cent.
Traders in China said the stock market’s gains were driven by renewed interest from retail investors. State media last week warned that stocks were rising too quickly.
Gold was close to flat at $1,958 per troy ounce, after hitting its all-time high on Tuesday. Goldman Sachs lifted its 12-month forecast for gold to $2,300 per troy ounce, from $2,000. “We have long maintained gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows,” the bank said.
Oil prices rose but remained rangebound with Brent crude, the international benchmark, up 1.2 per cent at $43.72 per barrel.
