By Peter Nurse.
Investing.com – The U.S. dollar weakened slightly in early European trading on Monday, dragged down by the U.S. authorization of a new coronavirus treatment, but the decline has been minimal as traders look for guidance on future U.S. monetary policy from the Federal Reserve’s annual Jackson Hole retreat later this week.
At 2:55 a.m. EDT (0655 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was down 0.1 percent at 93.135.It was essentially unchanged at 105.81, up 0.2 percent at 1.3107.
The U.S. Food and Drug Administration said Sunday that it had issued an ’emergency use approval’ allowing plasma from recovering patients to be used as a treatment option for certain patients affected by the Covidiene-19 virus. The announcement came at the start of a week in which President Donald Trump will formally accept the Republican Party’s nomination for re-election at the Republican National Convention.
This contributes to the “risk-on” tone against the dollar, but the losses are modest, as many investors are waiting for more definitive and credible vaccine news.
In addition, the main focus this week is likely to be on the Federal Reserve, and Governor Jerome Powell’s opening session at Jackson Hole, even if it is a virtual event.
Investors are expected to hear news on the central bank’s long-awaited review of its monetary policy framework.
“Markets will again be on the lookout for any signs that the Fed is close to adopting an average inflation target and better understand the conditions that are driving yield curve control,” ING analysts said in a research note.
The Fed’s deployment of quantitative easing so far has flooded financial markets with excess liquidity and depressed the dollar. It fell to its lowest level in more than two years last week.
Elsewhere, the dollar rose slightly on Monday, up 0.1% to 1.1802, but on the back of a rise in the number of Covidien-19 cases, the single currency fell slightly against the dollar from the two-year high reached last week, after disappointing European manufacturing and services data released on Friday.
“With the resurgence of Covidien cases in many parts of the world, the worry now is that we have seen the best recovery data and V-shaped expectations will take a hit in September,” ING added.
The next major hurdle for the common currency is Tuesday’s release of a closely watched German sentiment survey.
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