The dollar struggled on Wednesday, holding a whisker above a 27-month low hit overnight, after a record run for stocks on Wall Street added to pressure on the currency from simmering trade tensions between Washington and Beijing.
The greenback was broadly flat at 92.15 against a basket of currencies in early European trading and just a shade above a April 2018 low of 92.124 seen on Tuesday.
The dollar index has shed more than 5% since the end of June, notching up its biggest monthly loss in a decade in July, as broad market risk sentiment has picked up and investors have bet on stronger economic recoveries outside the United States.
Marshall Gittler, head of investment research at BDSwiss Group, said doubts about U.S. progress in controlling the spread of COVID-19, the ongoing U.S.-China trade dispute and concerns Congress will fail to agree a further relief package are weighing on the dollar.
“The outlook for U.S. growth – already falling behind Europe – is getting grimmer,” Gittler said in a note.
A Citigroup economic surprise index, which measures the difference in economic data relative to estimates, showed the U.S. recovery has sidelined in recent weeks while its European index remained strong.
The euro has been the main beneficiary of dollar weakness, up 6% against the dollar since the end of June. The single currency was up 0.1% on the day, remaining firmly above $1.19.
Currency analysts at MUFG said that while a surge in Wall Street’s S&P 500 had weighed on the dollar, anxieties about the U.S. economy’s outlook had also weakened the greenback’s safe haven appeal in financial markets.
Investors will keep an eye on the minutes from the Federal Reserve’s recent meeting due later on Wednesday for any hints on further action it could take in September. Money market futures expect no change in policy rates until the end of 2021.
Sterling was up nearly 0.2%, after official data showed British inflation jumped unexpectedly last month to its highest rate since March.