The dollar changed insignificantly on Wednesday after U.S. retail sales increased by more than expected in May. However, caution kept traders from aggressively buying riskier currencies like the Australian or the New Zealand dollars.
On Tuesday, U.S. Federal Reserve Chairman Jerome Powell painted a rather bleak picture of the U.S. economy. He managed to simultaneously douse some of the market’s optimism and reinforce hopes for continued policy support.
There was also disheartening news about record-high virus infections in six U.S. states, China and Brazil. Clashes between Chinese and Indian troops in the western Himalayas also undermined sentiment.
The U.S. dollar edged 0.1% lower to 96.89 against a basket of other currencies. After reaching a three-month low last week, the index has bottomed out. The broad outlook remains pessimistic so far.
Kazushige Kaida, the head of FX sales at State Street, stated that traders are looking to, with caution, how critical the impact from any second wave of coronavirus infections on the economy will be. It’s not that forex markets are pessimistic, but the length of time people hold their positions is getting shorter.
Jerome Powell announced that a full U.S. economic recovery would not occur until the American people are sure the novel COVID-19 epidemic is under control. But that remains far from certain, considering that new coronavirus infections rose to record highs in six U.S. states, among them Texas and Florida, on Tuesday.
Meanwhile, China pulled up restrictions on people leaving Beijing on Tuesday to stop the worst coronavirus flare-up since February from spreading.
What about European currencies?
The Euro’s momentum was also hindered after the Fed’s cautious message. The currency stayed below a three-month high of $1.1422 reached last week. On Wednesday, it traded at $1.1286 after rallying almost 5% after a Franco-German proposal for a recovery fund in late May.
On the other hand, the Sterling was steady at around $1.2576. It was below the three-month high of $1.28 it reached earlier in June. Brexit’s developments continue to hobble the British pound.
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