Dollar drifts as risk sentiment proves elusive

LONDON: The dollar edged lower against its rivals on Wednesday as investors weighed hopes for a swift economic recovery against fears about a resurgence in the pandemic, particularly in the United States.

Demand for the US currency proved remarkably stable as oil prices steadied while European bourses traded in negative territory.

Against a basket of its rivals, the dollar index slipped 0.14% at 96.84 .

The euro rose marginally against the greenback at $1.1289 while a recent fall in selling positions against the greenback provided room for possible further drops.

Noting the absence of major economic indicators during the session to set a trend, Marshall Gittler, head of investment research at BDSwiss, argued the dollar "is generally at the mercy of risk sentiment -- which seems to be taking a turn for the worse".

The dollar is typically seen as a safe haven for investors to park their cash each time a resurgence of the pandemic seems to threaten a global economic recovery.

"I think in the absence of any news pro-growth news, the virus count will be the one statistic that pops out from everyone's screens", he added, noting that while it may seem counter-intuitive, rising US cases often encourage investors to buy in the currency.

Commerzbank analysts also said that the current standstill for the dollar reflected the lack of visibility for global growth rather than a new-found serenity on world markets.

"What might look lethargic at first glance is likely to be based on uncertainty as to what will happen to the economy," Commerzbank foreign exchange analysts told clients in a note.

"There are strong fears that the continued spread of the virus might quickly stifle this recovery again, which in turn would strengthen the US dollar due to its - admittedly questionable - status as a safe haven," they said.

Sterling shrugged earlier losses and rose 0.2% at at $1.2561 as talks resumed between the Britain and the European Union on terms for their future trade relations.

A Commission official said on Wednesday that future access for UK banks, clearing houses and trading platforms was currently being assessed to take into account how far the United Kingdom will diverge from the bloc's rules.

Overall the pound held close to three-week high as traders awaited an announcement on Wednesday by British finance minister Rishi Sunak of his next moves to prevent a wave of job cuts from damaging an already weakened economy.

The Norwegian krone was up about 0.2% at 10.6848 against the euro after data showed the economy rebounded in May after two months of steep declines as a gradual reopening of businesses from coronavirus lockdowns helped turn activity around.

Earlier, the onshore yuan was stable at 7.0129, halting a two-day rally, after the Chinese central bank's daily midpoint for the currency was set at a weaker than expected level. Other Asian currencies straddled narrow ranges as a resurgence of coronavirus cases threatened a return of lockdown restrictions, leaving investors fretting about the mounting economic costs of the pandemic.

The Australian dollar was flat at $0.6944 as sentiment for the Aussie stayed weak after coronavirus lockdown measures were reimposed in Australia's second biggest city of Melbourne on Tuesday.