Forex - Dollar Dips

Forex - Dollar Dips The U.S. dollar edged lower in early European trade Tuesday, as a senior official in the Trump administration tried to ease tensions between the U.S. and China over the handling of the coronavirus outbreak.

At 2:45 AM ET (0645 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.51, down 0.1%, while EUR/USD rose 0.1% to 1.0909. GBP/USD climbed 0.1% to 1.2458 and USD/JPY fell 0.1% to 106.66.

Deputy national security adviser Matthew Pottinger insisted Monday the United States is not considering “punitive measures” against China over its handling of the pandemic, taking a more conciliatory stance after some of the recent hostility toward Beijing from other members of the U.S. government, including the President himself.

The aggressive stance from the U.S. administration had raised fears over the weekend of another trade war between the two most powerful economies in the world, resulting in flows into the dollar as a safe haven.

Also of note Tuesday will be movements of the euro given the ruling by the German constitutional court on the legality of the ECB’s public sector purchase program is scheduled for 4 AM ET (0800 GMT).

The German court is not expected to rule the program illegal, as the European Court of Justice has already ruled in favor, but it could impose restrictions on the Deutsche Bundesbank's participation in ECB bond-buying.

“This could undermine European Union cohesion in the face of the worst post-war economic contraction, overshadowing efforts to channel funds to weaker southern EMU members such as Italy – possibly widening these countries’ bond spreads with Germany,” said David Marsh, chairman of the independent central banking forum OMFIF, in a research note.

Elsewhere, the Australian dollar is posting gains against the U.S. equivalent following the conclusion of the latest meeting of the country’s central bank.

The Reserve Bank of Australia kept rates on hold at its record low of 0.25 per cent as Australia continues to battle with the coronavirus’ impact on its economy. While this move was largely expected, there was a minority that expected the RBA to cut interest rates once more to 0.15%.

RBA governor Philip Lowe warned that Australia is currently going through a “very difficult period”, saying that even in the central bank’s baseline scenario, unemployment is set to hit 10 per cent while productivity will also fall by that amount. The Australian government also warned that it expected GDP to contract 10% in the current quarter.

At 02:30 AM ET, AUD/USD traded at 0.6449, up 0.4%.

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