US dollar advances further as investors trim bets

London

THE US dollar's bounce extended on Thursday as investors trimmed bets against the greenback and sold the euro on concerns that the European Central Bank (ECB) was worried about its rise. The surge has lifted the greenback about 1.3 per cent above the 28-month low it hit against a basket of currencies on Tuesday.

Few analysts expect it to hold for too long, but the US dollar gained broadly in Asia and, if sustained, this would be the first time it has climbed three sessions in a row since May.

After the euro touched US$1.20 earlier this week, worries brewed in the market that the rise had come too fast and strong for the ECB's liking. Fears have intensified after a Financial Times report confirming those concerns. ECB policymakers reportedly warned that if the euro keeps appreciating it will weigh on exports, drag down prices and intensify pressure for more monetary stimulus. That followed remarks on Tuesday from ECB chief economist Philip Lane, who said the exchange rate "does matter" for monetary policy.

"Overall the comments suggest that an immediate policy response from the ECB to help weaken the euro appears unlikely, and they will rely more on jawboning to dampen euro strength for now," said Lee Hardman, currency analyst at MUFG.

"We may be approaching a phase where the ECB could curb the pace of euro appreciation, but... I have a serious doubt that this could send the euro materially lower," said Vasileios Gkionakis, global head of FX strategy at Lombard Odier. "The dollar correction has yet to run its course."

The euro was last down 0.4 per cent at US$1.1812, having slipped earlier in the session to a one-week low of US$1.1789. The US dollar was up 0.3 per cent against a basket of currencies at 92.99. For about a fortnight now the US dollar has been fighting to hold the line after dropping 10 per cent from a March peak.

As traders start to temper stretched bets on the euro, it could post its best week on the common currency in four months.

A stronger US dollar helped push the British pound down 0.7 per cent to US$1.3263, a six-day low, and the Norwegian crown lower by 0.5 per cent to 8.90. The Swedish crown followed suit. Against the Japanese yen, the US dollar also rose by 0.3 per cent at 106.45, a six-day high. And the Australian dollar fell 0.6 per cent at 0.7293.

The euro's slide was also justified by the eurozone's rebound from its deepest economic downturn on record faltering in August, with some countries suffering more than others from curbs imposed to limit the spread of the coronavirus. REUTERS