Dollar falls to two-year lows as U.S coronavirus cases surge
The U.S. dollar fell to a two-year low on Wednesday as pressure built on the Federal Reserve to strike a dovish policy stance amid a surge in coronavirus cases.
Markets expect policymakers to hold fire, but rising infection rates and increased tensions is leading some analysts to predict strong forward guidance from the Fed.
“These factors mean we should expect a decidedly more pessimistic assessment of the outlook for economic growth,” said Derek Halpenny, head of research at MUFG Bank. “We should also probably expect some focus on the U.S. dollar, given the notable move we have had since the last meeting.”
Against a basket of other currencies <=USD>, the dollar fell 0.4% to 93.41, its lowest level since June 2018. It has weakened more than 3% since the last Fed meeting as yields on benchmark U.S. Treasury debt have fallen more than 20 bps since then.
U.S. consumer confidence fell more than expected in July, losing steam following two months of recovery, in another sign that rising COVID-19 infections are cutting into consumption.
“Given the concerns about the second wave of infections, markets think the Federal Reserve is likely to take a dovish policy stance,” said Yujiro Goto, chief FX strategist at Nomura Securities.
The euro traded at $1.1762
Investors will also be watching for any indications that the Fed will increase its purchases of longer-dated debt, implement yield caps or target higher inflation than previously indicated when its two-day meeting ends on Wednesday.
The weakening dollar also pushed the Australian dollar higher with the currency traded at $0.7185
Source: Reuters (By Saikat Chatterjee)