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Forex – Dollar Edges Higher, But Remains Weak

The dollar edged higher in early European trade Thursday, but remained mired near two-year lows after the Federal Reserve stuck to its dovish stance in pledging to support the U.S. economy from the ravages of the Covid-19 pandemic.

At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.498, recovering a touch from the 93.273 level seen earlier, its lowest level in more than two years.

Elsewhere, USD/JPY was up 0.3% at 105.18, GBP/USD was down 0.3% at 1.2958, just below Wednesday’s 4-1/2-month high of $1.3006. 

EUR/USD was down 0.3% at 1.1753, having earlier climbed above 1.18 for the first time in two years. The single currency is on course to post its biggest monthly gain in 10 years, having risen just short of 5% so far this month.

The U.S. Federal Reserve concluded its latest two-day meeting late Wednesday, keeping interest rates near zero, pledging to keep an accommodative monetary policy for an extended period. 

The central bank’s policy statement also directly tied the economic recovery to an end of the coronavirus health crisis. This comes as the United States surpassed 150,000 recorded Covid-19 deaths on Wednesday, with several states seeing their highest death tolls. 

The U.S. epidemic has intensified since June, with an average of around 65,000 new cases detected each day, putting a brake on the rebound in economic activity. This has drained support from the greenback as investors started to doubt that U.S. economic growth would rebound more quickly and higher than most other countries.

Economic data due later Thursday is expected to show a record 34% drop in annualised gross domestic product last quarter, while the weekly jobless claims is likely to show more people claiming unemployment benefits than last week.

Fed Chairman Jerome “Powell and his colleagues on the FOMC are clearly more concerned about the economy than they were just a month ago,” said Diane Swonk, chief economist at Grant Thornton. “The resurgence of COVID cases and the impact that has on the economy is spurring their anxiety. Powell is willing to do more but is limited and needs Congress to step up to the plate and provide more aid ASAP.”

Meanwhile, Republicans and Democrats continue to negotiate over the country’s latest stimulus measures, with just one day left before some earlier stimulus measures expire.

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