US Dollar Extends the Decline, Euro and GBP Strengthen
The US dollar extended the downside momentum into the Thursday trading as concerns over the second US stimulus increased sharply after Democrats and Republicans failed to agree on the aid package. The USD index is currently trading close to 93 levels, slightly above the lows that it had hit last week.
The dollar price movement is slightly supported by stronger-than-expected U.S. CPI numbers. The U.S. consumer price index grew 0.6% last month, representing the biggest monthly gains in nearly two decades.
Investor’s sentiments are impacted by the statements of the Treasury Secretary Steven Mnuchin. The secretary said that both parties failed to reach an agreement following five days of negotiations.
“The dollar needs positive news on stimulus to rise further, but I’m sure we’ll get there because these politicians can’t go back to their constituencies empty-handed,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
Despite the retreat against the basket of major currencies, the US dollar grew sharply against the Yen amid improving U.S. debt yields.
On the other hand, the euro gained momentum against the US dollar. Euro trades around 1.18 level against the dollar, down slightly from two years high that it had hit last week.
“Euro/dollar is clearly following interest rate differentials and on a three-month basis the euro is now trading in positive territory relative to the dollar if you look at the cross-currency basis swap,” said Cambridge’s Schamotta.
The euro is also supported by the ZEW survey. The survey shows that European economic sentiments grew sharply in August compared to the previous months. The measure of economic expectations grew to 71.5 this month from 59.3 in the past month.
British Pound also looks firm against the dollar despite the UK’s largest second-quarter economic contraction. UK second-quarter gross domestic product contracted by 20%.