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Virus scare puts dollar near year's highs as ECB looms

07/21/2021 | 02:14am EDT

SINGAPORE, July 21 (Reuters) - The dollar stood on the verge of fresh year-to-date peaks on Wednesday, as jitters about surging virus infections buttressed gains built on higher interest rate expectations, with investors waiting on the European Central Bank for their next cue.

The euro touched its lowest since April on Tuesday and, at $1.1772 in Asia, was not far above the year's nadir at $1.1704. It might find support if the ECB fails to meet expectations for a dovish tweak to rates guidance at its Thursday meeting. But if that is delivered, it could open the way for further weakness.

"The implication is the ECB's monetary policy will now remain ultra easy for even longer which is a headwind to the euro," said Commonwealth Bank of Australia strategist Kim Mundy.

Other majors likewise faced difficulty escaping multi-month lows leaving sterling, the Canadian, Australia and New Zealand dollars to trade under pressure in the Asia session.

"The U.S. dollar does seem to have quite an undertow of support," said Westpac analyst Sean Callow in Sydney.

The dollar index added 0.1% to 93.033 and could test its March peak of 93.439, Callow said, as the currency seemed to find help from risk aversion when investors were nervous and support from rate hike expectations when they were not.

"The general mood on the dollar looks as though it would take a lot to derail the basic narrative of the dollar being in fairly good shape from here to the Jackson Hole conference," he added, referring to the August symposium in Wyoming where the Federal Reserve may announce tapering of its bond purchases.

"For the time being you'd probably just prefer to keep long dollars for the next few weeks."

Elsewhere the Australian dollar took a knock from soft retail sales data and the expectation of more weakness in the near term as much of the country is locked down to slow coronavirus transmission. It was off 0.3% at $0.7310.

The New Zealand dollar was parked at $0.6913 and the Canadian dollar began to hand back some of the bounce it managed overnight.

The dollar was steady against the safe-haven yen, which has also been advancing broadly while concerns grow about surging global coronavirus infections and the obstacle they could present to economies on the path to pandemic recovery.

The yen was last at 109.87 per dollar and 129.37 per euro.

The seven-day average of daily new infections is at its highest since May and the corresponding average of reported deaths is also on the rise.

Sterling faces pressure as cases soar while England drops most social curbs.

Sterling was last at $1.3616, below its 20-day and 200-day moving averages and just a fraction over Tuesday's five-month low. The Singapore dollar also traded near Tuesday's eight-month low after the reimposition of some curbs.

With a light data calendar on Wednesday, Thursday's ECB meeting looms largest on the horizon. A dovish tone is expected after President Christine Lagarde foreshadowed a guidance tweak during an interview last week.

The ECB announced a new strategy which allows the bank to tolerate inflation above its 2% target and Lagarde said policy guidance would be revisited to demonstrate the bank's commitment to the new goal.

"No change in the ECB bias is unlikely to be enough to send the euro higher," analysts at ING said in a note. "At the same time, any ECB shift towards the dovish interpretation of the strategic review would underscore the recent downward euro/dollar trend."

In the digital space, cryptocurrencies clawed back Tuesday's losses to drag bitcoin from a one-month low and back over $30,000.

(Reporting by Tom Westbrook; Editing by Ana Nicolaci da Costa & Shri Navaratnam)

ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.14% 0.91874 Delayed Quote.-5.56%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.03% 0.6194 Delayed Quote.-1.34%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.03% 80.44 Delayed Quote.1.38%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) 0.11% 1.03551 Delayed Quote.-3.53%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.10% 0.67149 Delayed Quote.-0.89%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.01% 0.72605 Delayed Quote.-5.16%
BITCOIN - EURO 0.45% 36610.73 Real-time Quote.54.35%
BITCOIN - UNITED STATES DOLLAR 0.32% 42879.25 Real-time Quote.47.86%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.06% 1.88242 Delayed Quote.5.90%
BRITISH POUND / CANADIAN DOLLAR (GBP/CAD) -0.02% 1.72967 Delayed Quote.-0.04%
BRITISH POUND / EURO (GBP/EUR) 0.00% 1.16607 Delayed Quote.4.45%
BRITISH POUND / JAPANESE YEN (GBP/JPY) -0.02% 151.438 Delayed Quote.7.29%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) 0.01% 1.94945 Delayed Quote.2.14%
BRITISH POUND / SINGAPORE-DOLLAR (GBP/SGD) 0.03% 1.84993 Delayed Quote.2.46%
BRITISH POUND / US DOLLAR (GBP/USD) 0.00% 1.36695 Delayed Quote.0.34%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.13% 1.088435 Delayed Quote.5.89%
CANADIAN DOLLAR / EURO (CAD/EUR) -0.03% 0.674322 Delayed Quote.4.53%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) 0.05% 87.543 Delayed Quote.7.41%
CANADIAN DOLLAR / SWISS FRANC (CAD/CHF) 0.07% 0.73091 Delayed Quote.5.13%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.01% 0.7898 Delayed Quote.0.57%
COMMONWEALTH BANK OF AUSTRALIA 0.89% 101.7 End-of-day quote.23.86%
DOW JONES FXCM DOLLAR INDEX 0.22% 12007.68 Delayed Quote.2.85%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.01% 1.61395 Delayed Quote.1.40%
EURO / JAPANESE YEN (EUR/JPY) 0.02% 129.847 Delayed Quote.2.81%
EURO / NEW ZEALAND DOLLAR (EUR/NZD) 0.06% 1.67147 Delayed Quote.-2.23%
EURO / SINGAPORE-DOLLAR (EUR/SGD) 0.04% 1.5859 Delayed Quote.-1.90%
EURO / US DOLLAR (EUR/USD) 0.01% 1.17198 Delayed Quote.-3.88%
INDIAN RUPEE / AUSTRALIAN DOLLAR (INR/AUD) -0.01% 0.018665 Delayed Quote.4.33%
INDIAN RUPEE / EURO (INR/EUR) -0.03% 0.011555 Delayed Quote.2.98%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) -0.01% 1.500735 Delayed Quote.5.79%
INDIAN RUPEE / SINGAPORE-DOLLAR (INR/SGD) -0.01% 0.018332 Delayed Quote.1.03%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.01% 0.013548 Delayed Quote.-1.04%
JAPANESE YEN / SWISS FRANC (JPY/CHF) -0.07% 0.8344 Delayed Quote.-2.24%
MSCI SINGAPORE (GDTR) -0.56% 6540.383 Real-time Quote.13.02%
NEW ZEALAND DOLLAR / CANADIAN DOLLAR (NZD/CAD) -0.06% 0.88713 Delayed Quote.-2.06%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) -0.02% 77.673 Delayed Quote.5.16%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) -0.02% 0.70104 Delayed Quote.-1.60%
US DOLLAR / AUSTRALIAN DOLLAR (USD/AUD) -0.05% 1.377278 Delayed Quote.5.43%
US DOLLAR / EURO (USD/EUR) -0.02% 0.853257 Delayed Quote.4.04%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.06% 110.786 Delayed Quote.6.92%
US DOLLAR / SINGAPORE-DOLLAR (USD/SGD) 0.01% 1.35336 Delayed Quote.2.13%
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