Better-than-expected German economic sentiment lifts euro

London

THE euro rose nearly 0.5 per cent on Tuesday on better-than-expected German economic data, while the US dollar fell after the United States and China both hailed a phone call between their senior trade officials as a success.

German business morale improved more than expected in August as both manufacturing and services picked up steam, a survey showed, boosting hopes that Europe's largest economy is set for a strong recovery following the massive Covid-19 shock.

Kit Juckes, macro strategist at Societe Generale, said Germany's IFO Business Climate index was "just another data point that helps keep the euro at this stretched level", adding that "US confidence and home sales data are unlikely to elicit any response at all". The euro was last up 0.4 per cent at US$1.1831, having risen as high as US$1.1842 earlier.

The trade-sensitive Australian dollar and Chinese yuan rose against the US currency, reaffirming investors' faith that even as diplomatic ties between the two countries fray, the trade relationship can endure.

On the call, which had been originally scheduled for Aug 15, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice-Premier Liu He. The US said both sides "see progress" and China's commerce ministry called the talks "constructive." The news lifted the Australian dollar 0.2 per cent to US$0.7173 and nudged the Chinese yuan firmer to 6.9070.

The greenback also inched lower versus the British pound to stand down 0.4 per cent at US$1.3119.

The US dollar was only up versus the Japanese yen, last trading at 106.34, 0.3 per cent stronger.

Against a basket of currencies the dollar dipped 0.2 per cent to 93.03. It has steadied this month after a roughly 10 per cent slide from late March through to early August.

Sentiment, and support for riskier currencies over the dollar, was also boosted by a Financial Times report which said that the US authorities were considering fast-tracking approval for a Covid-19 vaccine being developed by AstraZeneca and Oxford University.

Stocks moved further into record territory but FX moves were contained with markets already looking ahead to a speech from Federal Reserve chairman Jerome Powell later in the week, which could shift the US dollar in either direction.

Investors expect him to strike a dovish tone on Thursday at the Jackson Hole Symposium and maybe address speculation that the central bank could adopt a more accommodative stance on inflation.

"The potential dovish shift in Fed policy should be well priced in by now which should limit further downside potential for the US dollar," said Lee Hardman, currency analyst at MUFG.

Low US yields, mirroring expectations that the Fed is willing to accept inflation overshooting its target, have been weighing on the dollar. REUTERS