Dollar nears 3-week highs on comments from Fed chief

London

THE US dollar strengthened towards a three-week high on Thursday as stock markets weakened broadly after Federal Reserve chairman Jerome Powell dismissed speculation about negative interest rates.

European stock markets were down more than one per cent while US stock futures indicated a negative start for Wall Street, pointing to a third consecutive session of losses and sending investors to the relative safety of the greenback. Comments from US President Donald Trump also lifted the dollar.

Mr Trump said that he supported a strong dollar, just as Mr Powell rejected the idea of using negative interest rates.

Though Mr Powell is the latest in a parade of policymakers to brush off the notion that rates may enter negative territory, Fed futures were pricing a small chance of sub-zero US rates by March next year.

Mr Powell also said the recovery could take some time as he warned of a recession worse than any since World War II.

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"His words were a blow to the optimism that had been building in the markets over the last few weeks as the relaxation of social distancing restrictions had generated expectations of a V-shaped recovery from the virus crisis," said Raffi Boyadjian, senior investment analyst at XM.

Against a basket of its rivals, the dollar edged 0.2 per cent higher to 100.37, hovering below a three-week high of 100.44 tested earlier this week.

While the Fed chairman also urged more fiscal stimulus to support the economy, Mark Haefele, chief investment officer at UBS Global Wealth Management said the ongoing tensions between Republicans and Democrats suggested additional stimulus is "unlikely to immediately materialise".

Among major currencies, the Australian dollar led losers after data showed that the country shed jobs in April at the fastest pace on record, suggesting more monetary and fiscal easing may be needed to support the economy.

The Aussie fell 0.3 per cent to US$0.6437 after data showed unemployment increased by 594,300 in April, slightly more than the median estimate. The jobless rate rose to a five-year high.

The pound also tumbled below the US$1.22 line for the first time in more than five weeks after Wednesday's data showed Britain's economy shrank by a record 5.8 per cent in March as the novel coronavirus crisis escalated.

Investors are now focused on data from the US and Europe in the next two days for more clues on the depth of the downturns there. US initial jobless claims data is due on Thursday while the eurozone reports first-quarter GDP data on Friday. REUTERS