US dollar drifts higher as optimism ebbs on coronavirus crisis

The U.S. dollar edged higher on Wednesday in choppy trading, attracting safe-haven bids, as optimism faded that the coronavirus crisis may be nearing a peak and investor concerns remained over the economic fallout of the pandemic.

The greenback's firmer tone came after U.S. equities ended lower on Tuesday. Wall Street shares traded higher in morning trading on Wednesday, but not many analysts were betting they would remain so by the end of the day.

"Optimism has eased and it has to. It's a 50% world. Uncertainty will remain a part of our lives for the next two months," said Juan Perez, senior currency trader a Tempus Consulting in Washington. "There's really a fundamental lack of answer to an important question and that is: are we testing enough? And the answer is no. So you're not going to get a whole lot of consistency right now," he added.

In mid-morning trading, the dollar index was flat to slightly higher on the day at 99.993.

The dollar has for a month very closely tracked risk appetite as investors and businesses fearing the worst have rushed to the world's reserve currency.

Against the yen, the dollar inched higher to 108.79 yen.

The euro was slightly lower on the day at $1.0883, weighed down by the failure of European Union finance ministers to agree on further support for their coronavirus-hit economies. The impasse spooked bond markets and sent shorter-dated Italian yields spiking higher.

The talks, which are trying to agree a package of measures for governments, companies and individuals, were suspended until Thursday. A feud between Italy and the Netherlands over what conditions should be attached to euro zone credit for governments was blocking progress, sources said.

Sterling gained 0.4% against the dollar to $1.2395.

The Aussie, which fell in early European trading after ratings agency S&P cut the outlook for its sovereign AAA rating from stable to negative, clawed back losses and turned positive on the day.

Still, some analysts were already starting to look at the potentially negative longer term implications for the dollar of the extraordinary stimulus measures launched by Washington and the U.S. Federal Reserve to lessen the economic damage caused by the pandemic.

"If you assume that COVID-19 is tackled by the end of the year … in 2021 we have fiscal deficits, balance sheet expansion, and the supply of dollars through other measures – it's definitely a very strong background for a weaker dollar," said MUFG's Derek Halpenny.

Source: cnbc.com

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