By Peter Nurse
Investing.com - The dollar weakened in early European trade Thursday, with traders seeking out riskier currencies as a bet on economic growth, denting safe-haven demand for the U.S. currency.
At 2:55 AM ET (0655 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 96.252, dropping over 1% over the last week. EUR/USD was up 0.2% at 1.1356, while USD/JPY was largely flat at 107.27.
“The USD took a broad-based dive yesterday, which continued overnight. It was particularly visible in EUR/USD. The pair moved firmly above the 1.13 level and close to the peak from early June,” said analysts at Danske Bank, in a research note.
Lingering worries about the spread of the coronavirus could keep some currency pairs in a tight range, but the dollar's losses are gradually increasing as sentiment favors riskier bets on long-term economic growth.
With this in mind, focus will quickly turn to the release of the weekly unemployment data from the U.S. later in the session. Jobs trends have been positive as states and cities come back from Covid lockdowns, but some areas have now been forced to slow down or reverse reopenings.
Initial jobless claims are expected to be 1.4 million for the week ending July 3, which would be about even with the prior week.
Finance ministers from the euro area are due to meet Thursday, ahead of a summit of their leaders on July 17-18, amid optimism there will be an agreement allowing the proposed 750 billion euro recovery fund to be distributed to the economies hit hardest by Covid-19.
Sterling has also shown some strength, with the greenback close to a three-week low against the pound. Helping this move was the U.K. government’s announcement of its latest pandemic economic rescue plan, to the tune of 30 billion pounds ($38 billion).
GBP/USD climbed 0.3% to 1.2643, although sterling was largely flat against the euro, at 0.8981.
That said, further gains may prove tricky, particularly against the single currency.
“The announced measures today do not significantly alter our U.K. growth outlook, and with the overriding GBP driver (U.K.-EU trade negotiations) still looking fairly uncertain, more gains in GBP are unlikely,” analysts at ING said in a research note.
“We see EUR/GBP moving towards 0.92 within three months as the lack of anticipated progress in UK-EU trade negotiations should translate into further risk premium being built into the currency.”
Elsewhere, the USD/CNY pair slid 0.2% to 6.9878. The yuan was boosted by better-than expected inflation data for June, with producer prices falling 3% year-on-year. The drop in the PPI was smaller compared with the previous month’s drop of 3.7% and the 3.2% drop analysts had generally forecast. However, the pair is being supported most by the rally in Chinese stocks, which continued for an eighth straight day on Thursday.