FOREX-Dollar nurses losses as currency markets eye recovery prospects

* Sentiment drives Aussie to 10-week peak
* Weak inflation keeps pressure on pound
* PMI data due from 0730 GMT eyed
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Tom Westbrook
SINGAPORE, May 21 (Reuters) - The dollar nursed broad losses
on Thursday and riskier currencies held gains as investors
looked to a bright recovery from the COVID-19 pandemic,
shrugging off diabolical forecasts and rising Sino-U.S. tension.
In bullish overnight trade, the risk-sensitive Australian
dollar AUD=D3 broke free from two months of rangebound moves
to hit a ten-week high of $0.6616. The kiwi NZD=D3 hit a
ten-day top of $0.6157 and both seemed poised for further gains.
"I think they might keep going," said Westpac FX analyst
Imre Speizer.
"It's one big rally and that rally hasn't finished yet," he
said. "The trend is clearly still upward for equities and
currencies are mostly following it, even if not as strongly."
The S&P 500 .SPX is up about 35% from its March lows and
the Australian dollar has rallied about 20% since then.
Both the Aussie and the kiwi were lower in morning trade,
but moves were slight as markets await a speech from Australia's
central bank chief at 0230 GMT and purchasing manager surveys in
Britain, Europe and the United States later on.
Japan's flash purchasing managers' index on Thursday showed
manufacturing activity slumping again in May. Overnight, traders interpreted economic outlook downgrades
in the U.S. Federal Reserve's April meeting minutes as likely to
herald more stimulus, pushing stocks higher. .N
"Almost everywhere, policy makers are continuing to stress
that whatever resources are required will be made available,"
ANZ analysts said in a note on Thursday.
The euro EUR= hit its highest in three weeks, the Swiss
franc CHF= its highest in two weeks and the Chinese yuan
CNH= its highest in one week, while emerging market currencies
also surged.
In Asia, the euro last sat just below that peak at $1.0975
and the dollar inched higher on the Japanese yen JPY= to
107.68.
The yuan was steady at 7.1067 in offshore trade, even as
diplomatic tensions between China and Australia simmered and
after the United States took fresh aim at Beijing's handling of
the coronavirus on Wednesday.
U.S. Secretary of State Mike Pompeo called the $2 billion
that Beijing has pledged to fight the pandemic "paltry compared
to the cost that they have imposed on the world." The exception to the broad dollar weakness was the British
pound, which remains under pressure following inflation data
that fuelled more speculation the Bank of England would cut
interest rates below zero. "(It) keeps the debate about negative rates alive and
kicking," said Kit Juckes, macro strategist at Societe Generale.
"Poor old sterling," he said. "There is clearly a better
case for shorts in sterling/yen than euro/yen now, and even more
so in being short sterling/Aussie as well as sterling/yen, give
the slight risk-on bias and the move higher in resource prices."