Forex – Dollar Weakens; Political Warring Hinders Stimulus Delivery

Forex
© Reuters.  © Reuters.

By Peter Nurse

Investing.com – The  dollar weakened in early European trade Monday, weighed by worries about the U.S. economic recovery as political tensions rise and ahead of the release of the latest Federal Reserve minutes.

At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 92.933. rose 0.2% to 1.3108 and gained 0.2% at 1.1863. dropped 0.2% to 106.42, despite Japan suffering its biggest economic contraction on record in the second quarter.

The number of unemployment claims dipped below the one million mark late last week for the first time since the Covid-19 outbreak, but this would hardly be cause to celebrate given the grim reality that more than 30 million Americans are out of work.

All the time the Covid-19 virus continues to wreak havoc, with the United States surpassing 170,000 coronavirus deaths on Sunday, according to a data from Johns Hopkins University. The country’s public health officials and authorities are concerned about a possible fall resurgence in cases amid the start of the flu season, which will likely exacerbate efforts to treat the coronavirus.

With the Democratic national convention starting on Monday, traditionally the starting point for November’s presidential election, and the two sides seemingly further away than ever, a compromise that results in a new stimulus package seems an unlikely prospect.

The latest bone of contention between the two warring factions centers around the U.S. Postal Service, with the Democrats accusing President Donald Trump of trying to hamstring the cash-strapped organisation to suppress mail-in voting.

Of interest this week will be the release of Federal Reserve minutes on Thursday, with markets looking for any hints of a possible change to the central bank’s guidance at its next meeting in September.

“Market participants will be looking for insight into the details and exact timing of when the Fed’s Monetary Policy Review will be completed, and also for more clarity with respect to the potential timing and structure of any changes to forward guidance,” noted analysts at NatWest Markets, in a Reuters report.

These dollar losses could also be sustained going forward as hedge funds have now turned bearish on the greenback for the first time since May 2018.

Net futures and forward positions held by leveraged funds against eight other currencies dropped to minus 7,881 contracts last week, according to data aggregated from the Commodity Futures Trading Commission, Bloomberg reported.

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