US dollar stays weak amid signs of lagging economy

London

THE US dollar extended declines on Wednesday after a coronavirus relief package stalled in Congress, pushing US bond yields down as investors weighed prospects of further Fed easing.

Eurozone business activity returned to modest growth in July as many curbs imposed to stop the spread of the coronavirus were lifted, while official estimates showed retail sales volumes rebounded in June.

The euro traded up 0.5 per cent at US$1.1862, having risen to above US$1.19 in the past days on a hardening perception that the US economic recovery is lagging.

PMI numbers are due later in the day and so is the ISM non-manufacturing index and the ADP national employment data.

Neil Jones, head of European hedge fund sales at Mizuho, said the upshoot in the euro reflected the unity shown by Europe in tackling the coronavirus-induced slowdown, while in Washington a stalemate continued over fiscal policy.

That could leave the Federal Reserve with more work to do, hastening a steady decline in US Treasury yields.

US 10-year yields were close to the five-month low they hit on Tuesday and 10-year Treasury Inflation-Protected Security (TIPS) yields also held near record lows.

Mr Jones said the risk-on environment was playing a big part as well, as the price for gold hit a record high above US$2,000.

"I am expecting the euro to continue higher ... The first test is US$1.20 and then I'll probably review it, with a potential for US$1.25," he said.

White House negotiators and congressional Democrats are trying to reach a deal on a relief package by the end of this week, with Treasury Secretary Steven Mnuchin saying on Tuesday that progress had been made.

Most other major currencies were also up against the US dollar, pushing its index towards last week's two-year low of 92.53. It traded down 0.3 per cent at 92.88.

The Chinese yuan rose to a five-month high of 6.9384 against the US dollar in the offshore market and was last up 0.5 per cent.

Growth in China's services sector showed signs of a slowdown in July from a ten-year high the previous month, as new export business fell and job losses continued, a sister survey showed, pointing to cracks in the sector's post-Covid recovery.

The Canadian dollar surged to nearly a six-month high of 1.3245 versus the greenback, trading up 0.5 per cent on the day. REUTERS