Dollar Shows Strength Amid Economic Recovery Concerns

The dollar edged higher in early European trade Thursday, as concerns about the global economic recovery given a second-wave of Covid-19 infections prompted traders to desert riskier assets in favor of safe havens.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 94.505, around levels last seen two months ago.

Additionally, EUR/USD dropped 0.1% to 1.1653, just shy of a two-month low high reached on Wednesday, GBP/USD fell 0.2% at 1.2694, near levels last seen in late July, while USD/JPY was down 0.1% at 105.34.

“The dollar is holding onto gains as global sentiment remains fragile amid rising Covid cases and renewed lockdown measures in Europe,” according to analysts at ING, in a research note.

France became the latest country to tighten restrictions on social gatherings on Thursday, announcing a 10 PM curfew on bars and restaurants as well as other measures.

Also helping the flow away from riskier assets, a number of Federal Reserve policymakers wared that further government aid is needed to bolster the economy, with that stimulus looking very unlikely in the near term. The drop in IHS Markit’s U.S. PMI, while less closely tracked than the Institute for Supply Management’s survey, didn’t help.

Focus is set to turn to the German Ifo survey, due later Thursday, which is forecast to show an improvement in business morale in Europe’s largest economy.

Elsewhere, USD/CHF traded 0.1% higher at 0.9240, while EUR/CHF dropped 0.1% to 1.0767 ahead of the Swiss National Bank’s latest policy-setting meeting.

The central bank is widely expected to keep its key deposit rate at -0.75%, as the franc has declined around 1% since the SNB’s last policy meeting in June, relieving pressure on the central bank to counter the disinflationary effects of a rallying currency.

Central bank meetings in Egypt and Turkey later Thursday will also be studied carefully by foreign exchange traders, given the risk of large currency moves: the Turkish lira hit another new all-time low in early trading before bouncing.

All but one of 11 economists surveyed by Bloomberg predict Egypt’s central bank will hold its benchmark deposit rate at 9.25%, with the bank’s last move being a cut of 300 basis points in March.

The central bank’s focus remains on keeping capital inflows high, with Egypt’s real interest rate among the world’s highest.

In Turkey, the situation is more fluid, but only three of 31 analysts surveyed by Bloomberg predict the key one-week repo rate will rise from 8.25%. That said, six institutions, including Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM), forecast an increase in the late liquidity lending rate — the central bank’s highest — of between a quarter-percentage point to 100 basis points.

At 2:55 AM ET, USD/TRY traded 0.1% lower at 7.5869, while USD/EGP rose 0.3% to 15.7500.