FOREX-Dollar extends gains, Aussie lags, euro backtracks from $1.20 high

* Dollar index rises after upbeat manufacturing data
* Aussie dollar falls after recession confirmed
* Euro falls back below $1.19
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates prices, adds commentary, updates throughout)
By Elizabeth Howcroft
LONDON, Sept 2 (Reuters) - The dollar extended overnight
gains on Wednesday and the euro fell, retreating from the key
$1.20 level reached in the previous session, while the
Australian dollar lagged behind after the country confirmed its
is in a recession.
The dollar strengthened overnight, helped by positive U.S.
manufacturing data and technical factors. It extended gains in early London trading, then stabilised
as the morning progressed, with the dollar index at 92.586 at
1054 GMT, up 0.4% on the day =USD .
Commerzbank analyst Thu Lan Nguyen said that, although the
long-term economic fallout from coronavirus is unknown, it is
countries' relative economic performance that drives exchange
rates - in addition to monetary policy developments.
"The U.S. dollar was able to benefit from significantly
improved ISM data yesterday which suggest a continued high-speed
recovery, thus increasing the likelihood that the U.S. might be
able to overcome the crisis comparatively better after all," she
wrote in a note to clients.
The euro fell, down 0.4% at $1.18645 at 1055 GMT,
backtracking from the key $1.20 level it hit for the first time
since 2018 on Tuesday EUR=EBS .
The euro has surged more than 10% since its low point in
March and, although it was unmoved by Tuesday's eurozone
inflation data being unexpectedly negative, investors took
profits after European Central Bank chief economist Philip Lane
said that the euro-dollar rate "does matter" for monetary
policy. "(Lane's comment) shows that the ECB is not ignoring what is
happening on the inflation front," said Kenneth Broux, FX
strategist at Societe Generale. "The risk is that if inflation
undershoots the target, the stronger the euro becomes.
"It's interesting because it shows the ECB's being rattled
by this incessant appreciation of the euro, or decline of the
dollar," he added.
"What I would expect now is a bit more euro profit-taking
before the ECB meeting next week, because investors obviously
are going to heed Lane's comments now," he said.
Investors will now be looking to see if the ECB will follow
the U.S. Federal Reserve in shifting its policy towards
inflation, as it reviews its monetary policy, Broux said.
Along with the euro, the Australian dollar was a laggard
among G10 currencies, down 0.4% on the day at 0.7341 at 1108 GMT
AUD=D3 .
Worse-than-expected Australian gross domestic product data
confirmed the country's economy shrank 7% in the three months to
June, putting it in its first recession in nearly three decades.
The country was also hit on Tuesday by China's suspending
barley imports from Australia's largest grain exporter, adding
to tensions between China and Australia which, until recently,
had left Australia's agricultural products largely unscathed.
Risk currencies were little changed on the day: the
Norwegian and Swedish crowns were down 0.1% versus the dollar
NOK=D3 SEK=D3 , while the New Zealand dollar was broadly flat
NZD=D3 .
German retail sales fell unexpectedly, down 0.9% in July,
missing a Reuters forecast for a 0.5% increase and countering
hopes that household spending could drive a strong recovery from
the coronavirus shock. The spread of COVID-19 continues to limit activity, with
Poland set to ban direct flights from 44 countries, including
Spain, Israel and Romania. In the United States, there remain "serious differences"
between Democrats and the White House over proposed government
aid.