Dollar extends losses with focus on US Covid-19 cases

London

THE dollar fell on Monday while the euro led gains by strengthening half a per cent, though currency markets lacked clear direction as surging Covid-19 cases kept economic optimism in check.

The global death toll from Covid-19 reached half a million on Sunday, according to a Reuters tally. Cases surged in Southern and Western US states, prompting California to order some bars to close in the first major rollback of efforts to reopen the economy.

Elsewhere, profits at China's industrial firms rose for the first time in six months in May, suggesting that the country's economic recovery is gaining traction - but the news did little to support oil prices.

The dollar fell against a basket of currencies in the Asia session, recovered briefly in early London trading, before extending falls, down 0.3 per cent at 97.19 at 1015 GMT.

Having fallen more than 1 per cent this month, the dollar is on track for its biggest monthly loss since December 2019.

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ING strategists told clients that the dollar could be supported by month-end portfolio rebalancing on Tuesday.

There were some signs of investor caution: the Japanese yen was flat on the day, at 107.190, while the safe Swiss franc gained around 0.3 per cent against the dollar, at 0.9449 at 1010 GMT.

But the risky Australian dollar strengthened overnight even after the country reported its biggest one-day rise in new Covid-19 infections in more than two months.

It eased off in early London trading on Monday, up 0.2 per cent on the day at 0.6877. The New Zealand dollar was also up 0.2 per cent at 0.6436.

The euro rose 0.6 per cent - its biggest daily jump in a week - reaching as much as US$1.128, also rising against the pound, Swiss franc and yen, even though European shares opened lower .

Having touched a one-month low of 1.0628 on Friday, euro-Swiss was up 0.2 per cent at 1.06545.

"The longer the euro can remain in the current 1.1160-1.14 range, the more positive the longer-term outlook," Kit Juckes, head of FX strategy at Societe Generale, wrote to clients.

The recovery of economic sentiment in the eurozone intensified in June after a modest pick-up in May, European Commission data showed on Monday.

Goldman Sachs FX strategists wrote in a note to clients last week that they expect a sustained recovery in the global economy to support euro appreciation over the coming months.

"But at least at this stage we would not recommend euro/US$ longs for investors seeking risk-negative dollar shorts - for which the yen remains the best option, in our view," they added. REUTERS