FOREX-Dollar on defensive as U.S. recovery story in doubt

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, Aug 3 (Reuters) - The U.S. dollar ticked up in early
Monday trade, clinging to its rebound late last week, but
mounting concerns about a slowing U.S. economic recovery from
coronavirus epidemic kept a lid on gains.
The dollar rose 0.3% to 106.20 yen JPY= , having gained
almost 1% on Friday thanks in part to month-end buying following
its dive into a 4-1/2-month low of 104.195.
The euro also shed 0.3% to $1.1744 EUR= , off Friday's
two-year high of $1.1908.
The common currency hit a speed bump as there were some
technical signs of being over-bought in the near-term, and with
speculators' long position hitting a record level, said Minori
Uchida, chief currency analyst at MUFG Bank.
"But the dollar's decline is likely to continue. Real U.S.
interest rates are declining even as the country is running a
big current account deficit, a situation we hadn't have for a
long time," he said.
U.S. bond yields have fallen to their lowest level since the
market turmoil in March triggered by the pandemic, with the
10-year yield US10YT=RR slipping to near 0.50%, undermining
the yield attraction of the dollar.
That reflected worries U.S. economic recovery could be
undercut by a resurgence in COVID-19 cases.
U.S. policy makers have so far struggled to clinch a deal to
pump more money into the world's largest economy even as an
expanded unemployment benefit, worth about $75 billion per month
and accounting for nearly 5% of personal income, expired on
Friday. White House Chief of Staff Mark Meadows said on Sunday he
was not optimistic on reaching agreement soon on a deal for the
next round of legislation to provide relief to Americans hit
hard by the coronavirus pandemic. A growing U.S. fiscal deficit to finance the stimulus
prompted Fitch Ratings to revise the outlook on the United
States' triple-A rating to negative from stable. While the market has not shown immediate reaction to the
downgrade, that made a sharp contrast with the European Union,
which got a boost from Standard and Poor's decision to upgrade
its rating outlook to positive from stable.
Sentiment on the euro has improved after European Union
leaders agreed last month to a 750 billion euro economic
recovery fund - while also taking on debt jointly in a major
boost to regional cooperation.
Another source of concern is an intensifying tension between
Washington and Beijing as U.S. President Donald Trump threatens
to ban TikTok, a popular video app run by China's ByteDance.
Secretary of State Mike Pompeo said on Sunday Trump will
take action shortly on Chinese software companies that are
feeding data directly to the Beijing government, posing a risk
to U.S. national security.