US dollar faces decline despite reduced COVID-19 cases

On Tuesday August 4th, a dollar rebound failed, as political wrangling over a U.S. relief plan and the outlook of the pandemic, weighed on the currency.

After the dollar’s worst month in a decade in July, the currency started August on a firm note, as we saw investors trim their short positions.

However, that was not enough to get the dollar back on its feet. The dollar edged down 0.2 per cent on Tuesday against a basket of currencies.

“I think the eurozone recovery will be a lot faster than the U.S. recovery and that growth differential will continue to drive EUR/USD higher,’’ Marshall Gittler, FX analyst at BDSwiss, said in a note.

The Australian dollar edged ahead nearly 0.3 per cent after the central bank held the policies steady.

The corona virus cases in the U.S. are slowing down, however investors are reserving judgement on whether a U.S. economy with 30 million people out of work can lead the world’s recovery.

Talks on a potential further economic relief package are ongoing, though top Democrats in the U.S. Congress and White House negotiators on Monday said they had made progress.

“We’re still in a situation where the market wants to believe the recovery is on track but is still worried about the COVID situation,’’ said Bank of Singapore FX analyst, Moh Siong Sim.

“The fiscal wrangling in the U.S. is the next key test for risk sentiment and if they manage to get a deal – which seems likely – that could be supportive of risk sentiment.”