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Greenback set to snap losing streak on virus fallout

London

THE US dollar rebounded on Wednesday amid growing concerns that the damage to the global economy from the novel coronavirus pandemic will be long and protracted, boosting the safe-haven appeal of the greenback.

A fall in oil prices on expectations that production cuts by the Organization of the Petroleum Exporting Countries (Opec) may not be enough to support crude during a global demand crunch also weakened riskier currencies, with the oil-exposed Norwegian krone and Canadian dollar down sharply.

The US dollar had weakened in the previous four consecutive sessions on cautious optimism that lockdowns were slowing the spread of the virus.

But analysts warned that it remains unclear whether economies will recover quickly or whether it might take longer than expected.

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Fresh economic data from the US on Wednesday was expected to show a steep fall in retail sales, as well as hits to manufacturing and industrial production. This was the first set of economic data outside US jobless claims.

"Investors are taking stock and bracing for some big US numbers. These are the numbers you want to see to get a sense of how bad things are going to be," said Kenneth Broux, FX strategist at Societe Generale. "Oil prices going down is also not good for sentiment. It's broken the expectation that Opec's action would stabilise prices."

The global economy is expected to shrink by 3 per cent during 2020, a collapse in activity that will mark its steepest fall since the Great Depression of the 1930s, the International Monetary Fund said on Tuesday.

In European trading hours the US dollar bounced off early lows hit in Asian trading and rose 0.8 per cent to just shy of 99.6 against a basket of rivals, on track to break a four-day losing streak.

The greenback gained across the board, particularly against currencies seen as riskier bets such as sterling, where it was around 1 per cent higher.

The US dollar rose more than 0.5 per cent versus the euro and Swiss franc, and inched up 0.1 per cent against the Japanese yen.

Antje Praefcke, FX and EM analyst at Commerzbank, said investors were preparing for a slew of negative economic data.

"That means the worst might yet be to come, facing the market with an ice bucket challenge," she added. "In that case risk aversion would rise, allowing the dollar to appreciate again." REUTERS

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