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Dollar Gains, German Data Disappoints


7 July 2020

The dollar edged higher in early European trade Tuesday, reversing earlier losses as traders sided with the safe haven as the recovery in German industrial production was less impressive than expected in May.

At 3:10 AM ET (0710 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 96.896. EUR/USD was down 0.2% at 1.1290, GBP/USD dropped 0.1% to 1.2477, while USD/JPY was up 0.2% at 107.54. 

Germany's industrial production rebounded in May, rising by 7.8% on the month after falling by a revised 17.5% in April. However, this recovery was more modest than the 10% rise widely expected.

Despite the recovery, production is still well below the levels recorded before the onset of the coronavirus crisis. May output was down 19% in calendar- and season-adjusted terms compared with February, the month before lockdown measures were imposed.

Also adding to the demand for the safe-haven greenback has been the ever-increasing number of Covid-19 cases, with over 11.5 million cases having been reported globally as of July 7, according to Johns Hopkins University data.

The dollar had fallen sharply on Monday as better-than-expected U.S. services data strengthened investor expectations for speedier economic recovery.

There are a number of Federal Reserve speakers due later Tuesday, including Raphael Bostic, Mary Daly and Thomas Barkin. The market will pick up on comments with respect to the Fed's plans for QE and forward guidance.

Elsewhere, AUD/USD fell 0.4% to 0.6943, after Australia’s second-most populous state announced a six-week lockdown across metropolitan Melbourne after a coronavirus outbreak.

As expected, the Reserve Bank of Australia held its cash rate at 0.25% and made no changes to policy at Tuesday's board meeting.

“We expect the RBA to reiterate the Australian economy is performing better than feared, and any move higher in the cash rate is some years away,” Commonwealth Bank of Australia (OTC:CMWAY) analyst Joe Capurso told CNBC. But he added, “the main downside risks for AUD/USD are an escalation in U.S.-China tensions and the risk partial lockdowns become more widespread."

Also, USD/CNY rose 0.1% to 7.0207, with the dollar rebounding after the yuan hit its highest level in nearly four months after the sharp gains seen in the Chinese share markets.

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