Climbing greenback pauses for breath forward of ECB

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SINGAPORE, July 21 (Reuters) – The dollar took a breather from its surge on Wednesday and eased slightly as risk aversion eased, although sales were small as expectations of a cautious European Central Bank pegged the euro.

The euro hit a new three-month low of $ 1.1755 overnight and its small rebound had only brought it to as low as $ 1.1780 at the start of the Asia session.

The Australian and New Zealand dollars also rose from year-to-date lows, while the pound sterling hit a five-month low.

But moves have barely hurt a month in dollar gains, and even a 0.5% overnight rise in the Canadian dollar left it below its 200-day moving average. CAD /

“The US dollar seems to have a strong pull of support,” said Westpac analyst Sean Callow in Sydney.

The dollar’s rise was mainly driven by expectations that US economic strength could lead to higher interest rates, but it has recently been aided somewhat by risk aversion, he said.

“The general sentiment on the dollar looks like it will cost a lot to derail the basic narrative that the dollar is in pretty good shape from here to the Jackson Hole conference,” he added, referring to that August Symposium in Wyoming, at which the Federal Reserve may announce a slowdown in its bond purchases.

“Right now, you’d probably rather keep long dollars for the next few weeks.”

Analysts said the US dollar index, which last stood at 92,971 and was up 2.8% since mid-June, appeared ready to test its March high of 93,439.

The dollar also rose slightly against the Japanese currency as a safe haven, buying 109.96 yen after falling to just 109.07 yen this week as new concerns about new coronavirus cases around the world drove investors to safer investments.

Virus infections, and particularly the contagious Delta variant, continue to drag Asian currencies other than the yen on, as new bans have been imposed from Seoul to Sydney.

Sterling has similarly been under pressure as COVID-19 cases soared as England lifts most social restrictions and trusts vaccines will keep hospitals from becoming overwhelmed.

The pound sterling was last at $ 1.3631, matching Tuesday’s 5-month low of $ 1.3576 but below its 20- and 200-day moving averages.

The Australian dollar traded at $ 0.7319 after hitting $ 0.7300 overnight and the kiwi at $ 0.6916 from a low of $ 0.6882. The Canadian dollar was trading at $ 1.2687 per greenback.

With a light data calendar on Wednesday, traders look to Thursday’s meeting of the European Central Bank. A cautious tone is expected after President Christine Lagarde announced an amendment to the guidelines in an interview last week. Continue reading

The ECB announced a new strategy that would allow the bank to tolerate inflation above its 2% target, and Lagarde said the monetary guidelines would be revised to show the bank’s commitment to the new target. Continue reading

“A change in ECB bias is unlikely to be enough to drive the euro higher,” ING analysts said in a note. “At the same time, any shift by the ECB towards a cautious interpretation of the strategic review would underscore the recent downtrend in the euro / dollar.”

Reporting by Tom Westbrook; Editing by Ana Nicolaci da Costa

Our Standards: The Thomson Reuters Trust Principles.

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