US dollar consolidates gains at 2-month high

London

THE US dollar held at a two-month high on Thursday, as investors sought its safe-haven appeal on growing concerns over the resilience of an economic recovery in the United States and Europe, amid a second wave of coronavirus infections.

Federal Reserve policymakers called on the US government to provide more fiscal support, fuelling a bout of selling in risky assets overnight, while European economic data has worsened in recent days, prompting investors to lighten their positions after a rally in August.

Against a basket of six other currencies, the US dollar edged up 0.1 per cent to a two-month high at 94.56. It is up nearly 2 per cent so far this week as economic momentum shows signs of fading. It fell to an April 2018 low of 91.8 at the end of August.

Appetite for riskier assets soured after data on Wednesday showed US business activity slowed in September and as new restrictions to stem a surge in coronavirus infections in Europe hit the services industry.

A surge in Covid-19 cases in Europe risks becoming a deadly double epidemic of flu and coronavirus infections, EU health officials warned on Thursday, as they urged Europeans and their governments not to let their guard down.

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Also puncturing market optimism are growing concerns that US policy makers might struggle to reach an agreement to push for more fiscal stimulus after the November elections.

US Federal Reserve vice-chair Richard Clarida said on Wednesday that the US economy remained in a "deep hole" of joblessness and weak demand, and called for more fiscal stimulus, adding that policy makers "are not even going to begin thinking" about raising interest rates until inflation hits 2 per cent.

Some investors are also watching the Australian and New Zealand dollars, which have come under pressure on growing expectations their central banks could deliver more monetary stimulus. A decline in commodity prices is expected to increase downside risks for both currencies.

The Aussie fell 0.45 per cent to US$0.7042, near its weakest since July 21.

Other safe-haven currencies, including the Japanese yen and the Swiss franc, also held firm.

The British pound oscillated between gains and losses, but held above US$1.27 before an announcement of Britain's plans to protect jobs and employment later in the day. REUTERS