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FOREX-Dollar consolidates gains at 2-month highs on economic concerns

Thu, 24th Sep 2020 12:10

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Saikat Chatterjee

LONDON, Sept 24 (Reuters) - The U.S. 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 U.S. 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.

"Safe haven demand and higher inflation adjusted yields is
leading to a mini dollar revival," said Kenneth Broux, a
strategist at Societe Generale in London.

Against a basket of six other currencies, the dollar
edged up 0.1% to a two-month high at 94.56. It is up nearly 2%
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 U.S. business activity slowed in September and new
restrictions to stem a surge in coronavirus infections in Europe
hit the services industry.

The Norwegian and the Swedish crown came under particular
selling pressure in London trading hours after the former
trimmed its inflation forecasts for the next year and said no
rate hikes are planned for now.

The crown weakened 0.8% versus the euro to a 4-1/2 month low
of 11.15 crowns, and 0.9% versus the U.S. dollar to
a near three-month low of 9.6 crowns, before trimming some
losses.

The Swedish crown fell 1% against the greenback to
9.07 crowns per dollar.

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.

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

"Optimism on the recovery, optimism on the virus, and bets
on stimulus were keeping markets well bid, and on all three of
these issues, there has been a degree of disappointment this
month," said John Velis, an FX and macro strategist at BNY
Mellon.

U.S. Federal Reserve Vice Chair Richard Clarida said on
Wednesday that the U.S. economy remained in a "deep hole" of
joblessness and weak demand and called for more fiscal stimulus,
adding that policymakers "are not even going to begin thinking"
about raising interest rates until inflation hits 2%

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% to $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 $1.27 before an announcement of Britain's
plans to protect jobs and employment later in the day.

(Reporting by Saikat Chatterjee; Editing by Kirsten Donovan)

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