LONDON: The dollar clung to two-month highs on Wednesday as positive US economic data and concerns about a second wave of coronavirus infections in Europe met weak economic indicators.
Euro zone business growth ground to a halt in September, raising fears that fresh restrictions to quell a resurgence in coronavirus infections might put the economic recovery into jeopardy.
In Britain, the economy also lost momentum, a business survey showed, as consumer-facing sectors suffered, notably from the end of a government subsidy to support restaurants.
Other data, such as the number of nights booked in Spanish hotels falling by 64% last month, added to the pessimistic mood.
Commenting on the disappointing indicators, both in the UK and the euro zone, Rupert Thompson, chief investment officer at Kingswood, warned that a swift V-shaped recovery from now on was unlikely.
“With this decline happening even before the latest tightening of social distancing measures, these numbers highlight the fact that the easiest and strongest part of the economic recovery is now behind us”, he said.
Traders in the pound and the euro are also worried that Britain and the European Union will fail to agree a free trade deal, which would cause additional economic strain.
The dollar index, which measures the dollar against a basket of six major currencies, rose to a high of 94.25, the highest in two months, then limited its gains to around 94.
“At present the market is once again dominated by concerns about a second wave of infections, above all in Europe, meaning that the dollar is in demand again”, Commerzbank analysts wrote in a morning note.
The dollar is likely to continue to gain as the coronavirus rattles sentiment in Europe, but uncertainty about this year’s US presidential election means it could be prone to more volatile swings.
The euro fell to a two-month low of $1.1671 in early morning trading, its lowest since July 27, then recouped some losses and was stable against the dollar at 1107 GMT.
The pound fell to $1.2692, its lowest since late July, after British Prime Minister Boris Johnson introduced on Tuesday new restrictions on business activity to combat a second wave of the coronavirus. Sterling took back some losses in late morning trading and made its way back above $1.27.
The dollar was stable against the Swiss franc at 0.9203 after a 0.6% gain from Tuesday, when the dollar was bolstered by data showing US home sales surged to their highest level in nearly 14 years in August.
The Australian dollar fell to a six-week low of $0.7116. The New Zealand dollar lost 0.56% to $0.6597.
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