Dollar wallows near two-year low as virus dashes U.S. recovery hopes

© Reuters. FILE PHOTO: Four thousand U.S. dollars are counted out by a banker at a bank in Westminster

By Hideyuki Sano

TOKYO (Reuters) - The dollar languished near two-year lows on Wednesday as the United States struggled to contain its coronavirus epidemic, dashing hopes for a quick economic recovery and leading investors to question its relative economic strength.

The U.S. Federal Reserve is also expected to strike a dovish stance at its policy review later in the day and dollar bears bet it could even hint at further easing down the road.

The dollar index against six major currencies stood at 93.713 (DXY), having touched its lowest level since June 2018 this week.

The euro stepped back from Monday's 22-month high of $1.17815 to trade at $1.1723 (EUR=).

The dollar changed hands at 105.04 yen <jpy=>, having hit a 4 1/2-month low of 104.955 in the previous session.</jpy=>

Its weakness stemmed from an eroding perception that U.S. economic growth would be stronger than the rest of the developed world and that investors could count on higher returns in the dollar.

U.S. consumer confidence fell more than expected in July, losing steam following two months of recovery, in a fresh sign that rising COVID-19 infections are dampening consumption.

Four U.S. states in the south and west reported one-day records for coronavirus deaths on Tuesday and nationwide cases stayed high.

"Given the concerns about the second wave of infections, markets think the Federal Reserve is likely to take a dovish policy stance," said Yujiro Goto, chief FX strategist at Nomura Securities.

Investors will be watching for any indications that the U.S. central bank will increase its purchases of longer-dated debt, implement yield caps or target higher inflation than it has previously indicated when it concludes its two-day meeting on Wednesday.

Goldman Sachs (NYSE:GS) on Tuesday noted that a potential Fed shift "towards an inflationary bias" along with record high debt levels by the United States government are raising "real concerns around the longevity of the U.S. dollar as a reserve currency."

Such worries are spurring a rush to gold, which last stood at $1,963.5 per ounce <xau=>, near its record high of $1,980.5 per ounce on Tuesday.</xau=>

Also weighing on the dollar were uncertainties over an additional fiscal package to support the economy.

Some Republicans in the U.S. Senate pushed back against their own party's $1 trillion coronavirus relief proposal while Democrats are calling for a much larger support including a full extension of a $600-per-week enhanced coronavirus unemployment benefit.

The British pound fetched $1.2935, having hit a 4 1/2-month high of $1.2952 <gbp=d4>on Tuesday.</gbp=d4>

The Australian dollar traded at $0.7158, near its 15-month peak of $0.7184 touched a week ago, ahead of local inflation data.

Reprinted from investing.com, the copyright all reserved by the original author.