US dollar edges up, euro slips amid wait for US data

LONDON

IMPROVED European economic data boosted risk appetite on Wednesday, while the euro slipped and the US dollar index rose slightly as markets balanced hopes for a global economic recovery with surging Covid-19 infections in the United States.

With transmission rates of the coronavirus falling in much of Europe, and economies opening up, IHS Markit's final eurozone Manufacturing Purchasing Managers' Index (PMI) moved closer to the 50-mark separating growth from contraction in June.

Germany's manufacturing sector also contracted at a slower pace as Europe's largest economy lifted restrictions.

"What the market is now focusing on is how this recovery is panning out," said Commerzbank FX strategist Thu Lan Nguyen.

"The market is pricing in a relatively quick recovery and now we need some proof of that."

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The euro fell 0.2 per cent versus the US dollar to US$1.12105 at 1018 GMT, as currency markets moved sideways after a rally in which the euro gained 6 per cent against the US dollar in May and early June.

The US dollar was at 97.442 against a basket of currencies , having fallen overnight but strengthened in early London trading.

Although the US dollar has acted as a haven currency for much of the coronavirus crisis, US fundamentals have played a bigger role recently, meaning it can appreciate on better-than-expected data.

US manufacturing data for June, due later on Wednesday, is expected to show a rebound in activity.

"If the data from the US would disappoint then you might have the indication that maybe the eurozone is faring better, the recovery might be quicker than in the US - I think that's what's crucial now," said Commerzbank's Thu Lan Nguyen.

ING strategists wrote in a note to clients that euro-US dollar should stay around 1.1200 on Wednesday.

Investors have been betting that the surge in new infections in the US south and south-west will not derail a broader global economic recovery.

But the United States had its biggest spike in new Covid-19 cases on Tuesday since the start of the pandemic and the government's top infectious disease expert said that number could soon double.

The European Union has excluded the United States from its initial "safe list" of countries from which the bloc will allow non-essential travel from Wednesday.

Australia was also starting a localised lockdown of more than 300,000 people in the suburbs north of Melbourne in Australia after two weeks of double-digit rises in new coronavirus cases in the country's second most populous state. REUTERS