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The U.S. dollar has recovered moderately in early European trade Thursday, reversing earlier losses, but the long-term prognosis for the greenback continues to look less healthy.
At 3:AM ET (0700 GMT), the ICE (NYSE:) Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.135. dropped 0.1% to 1.1398, dropped 0.3% to 1.2544, and was flat at 106.92.
Helping the dollar Thursday has been the continued rise of Covid-19 cases globally, as a flurry of localized outbreaks across the world pushes the overall number of infections to 13.5 million and the death toll to nearly 600,000 deaths, according to Johns Hopkins University data.
China reported a 3.2% growth in its year-on-year, a sharp bounce back from the first quarter’s 6.8% contraction, although the weakened slightly as monthly data showed a surprising drop in that suggested ongoing weakness in consumer demand.
“Global market trends are increasingly looking like a renewed relative rotation out of the stay-at-home winners (tech, USD) towards reflation trades (, energy, EM FX) and not a global/US growth scare,” said analysts at Danske Bank, in a research note.
“We continue to see EUR/USD as being part of this rotation,” Danske added. “With this in mind (and we have not even begun to price Brexit optimism) we have started to think we can overshoot our short-term 1M and 3M target at 1.15.”
The Dollar Index is expected to weaken about 2% to 94.1 by the second quarter of next year, according to an analyst survey compiled by Bloomberg.
Additionally, Deutsche Bank’s Trade-Weighted Dollar Index has dropped more than 1% so far this month, Bloomberg reported, and is set to test the trendline in place since 2011, a break of which would be an important signal for dollar bears.
Looking ahead, the European Central Bank later Thursday, but is unlikely to deliver another easing package so soon after June’s moves.
“We expect a repetition of recent comments from various governing council members, thereby striking a cautiously optimistic tone compared to the June projections
Important U.S. economic data are due later Thursday, with set to a slowly improving employment situation, while analysts will be watching to see if May's big jump in can be repeated.
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