NEW YORK (Reuters) – The dollar was gaining ground on Tuesday as investors sought safety for the second day in a row while they eyed new restrictions aimed at curbing surging coronavirus cases in Europe, the latest U.S.-China tensions and Washington’s lack of progress on reaching a fiscal stimulus agreement.
Sterling wavered between losses and gains, at one point slipping to two-month lows against the dollar, as British Prime Minister Boris Johnson unveiled new restrictions to tackle a second wave of the virus.
“Those types of moves give the market pause. As we all know the virus doesn’t live in a vacuum and what you see in one country or region will affect other places. Economically it could have an effect,” said Minh Trang, senior FX trader at Silicon Valley Bank.
“Typically when there’s some fear in the market and some unknowns, investors would flow toward the dollar as a temporary safe haven.”
Trang also noted that the dollar, which has been weak since July, seemed to be hitting a floor with its slide, taking a pause in reaction to news from central banks as well as the virus.
In remarks released late Monday ahead of his testimony to a congressional committee on Tuesday, U.S. Federal Reserve Chair Jerome Powell said the Fed remained committed to using all the tools at its disposal to help the U.S. economy recover from the coronavirus pandemic.
A research report from Action Economics on Tuesday also cited issues such as deteriorating relations with China as well as deadlock in Washington over an aid package aimed at bolstering the economy.
U.S. President Donald Trump was set to tell the United Nations General Assembly it “must hold China accountable for their actions” related to the coronavirus pandemic, according to excerpts from a speech he was to deliver on Tuesday.
The S&P pared its opening gains, though it was still in positive territory by late morning as it bounced back slightly from Monday’s sell-off. Also on Monday currency investors shunned risk and pushed the dollar index to its highest point in almost six weeks.
The dollar =USD was last up 0.23% at 93.783 versus a basket of currencies.
In Spain, the army has been asked to help fight a coronavirus surge in Madrid, while restrictions in other European countries were announced last week, with Germany describing the situation as “worrying.”
You-Na Park-Heger, FX analyst at Commerzbank said that even though Commerzbank does not expect more extensive lockdowns, the possibility may weigh on market sentiment for some time.
“A rapid correction of yesterday’s move is therefore unlikely to be seen any time soon,” she said.
The Australian dollar, after earlier falling to its lowest point against the greenback in almost a month, was last down 0.21% at 0.7208 per dollar AUD=D3 after the Reserve Bank of Australia said it is assessing policy options including currency market intervention and negative rates.
The euro was down 0.31% against the dollar at $1.1733 EUR=EBS, while the dollar was gaining on the yen for the second day in a row, up 0.11% at 104.760 JPY=EBS.
Sterling was down 0.36% at $1.2768, though above its session low of $1.2711.
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