Euro up on German IFO, dollar slips on successful US-China phone call

LONDON: The euro rose nearly 0.5% on Tuesday on better-than-expected German economic data, while the U.S. dollar fell after the United States and China both hailed a phone call between their senior trade officials as a success.

German business morale improved more than expected in August as both manufacturing and services picked up steam, a survey showed, boosting hopes that Europe's largest economy is set for a strong recovery following the massive coronavirus shock.

Kit Juckes, macro strategist at Societe Generale, said Germany's IFO Business Climate index was "just another data point that helps keep the euro at this stretched level," adding that "U.S. confidence and home sales data are unlikely to elicit any response at all."

The euro was last up 0.4% at $1.1831, having risen as high as $1.1842 earlier.

The trade-sensitive Australian dollar and Chinese yuan rose against the U.S. currency, reaffirming investors' faith that even as diplomatic ties between the two countries fray, the trade relationship can endure.

On the call, which had been originally scheduled for Aug. 15, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He.

The United States said both sides "see progress" and China's commerce ministry called the talks "constructive."

The news lifted the Australian dollar 0.2% to $0.7173 and nudged the Chinese yuan firmer to 6.9070.

The greenback also inched lower versus the British pound to stand down 0.4% at $1.3119.

The U.S. dollar was only up versus the Japanese yen, last trading at 106.34, 0.3% stronger.

Against a basket of currencies the dollar dipped 0.2% to 93.03. It has steadied this month after a roughly 10% slide from late March through to early August.

Sentiment, and support for riskier currencies over the dollar, was also boosted by a Financial Times report which said that U.S. authorities were considering fast-tracking approval for a COVID-19 vaccine being developed by AstraZeneca and Oxford University.

Stocks moved further into record territory but FX moves were contained with markets already looking ahead to a speech from Federal Reserve Chairman Jerome Powell later in the week, which could shift the U.S. dollar in either direction.

Investors expect him to strike a dovish tone on Thursday at the Jackson Hole Symposium and maybe address speculation that the central bank could adopt a more accommodative stance on inflation.

"The potential dovish shift in Fed policy should be well priced in by now which should limit further downside potential for the U.S. dollar," said Lee Hardman, currency analyst at MUFG.

Low U.S. yields, mirroring expectations that the Fed is willing to accept inflation overshooting its target, have been weighing on the dollar.

"As the release of the latest FOMC minutes revealed, there is also some upside risk for the U.S. dollar if Chair Powell disappoints dovish market expectations if any way," Hardman said.

Investors were also looking ahead to U.S. consumer confidence figures and new homes sales at 1400 GMT for clues as to the relative performance of the European and U.S. economies.