FOREX-Dollar on course for worst month in decade as epidemic hobbles U.S. economy

* Dollar index down almost 5% this month, worst since 2010
* Spreading epidemic raises doubts on U.S. economic recovery
* Political uncertainties adding gloom on dollar
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, July 31 (Reuters) - The dollar slipped to two-year
lows on Friday and is on track to post its biggest monthly
decline in 10 years, as investors worried that a recovery in the
U.S. economy would be hampered by the country's struggle to stem
the coronavirus epidemic.
Confidence in the U.S. currency was undermined further after
U.S. President Donald Trump raised the possibility of delaying
the nation's November presidential election.
The dollar index fell to 92.597 =USD , a low last seen in
May 2018, and is on course to post its steepest monthly fall
since September 2010. It has fallen 4.9% so far this month.
"At the root of the dollar's weakness is the fact, which was
highlighted by Fed Chairman (Jerome) Powell the other day, that
U.S. coronavirus cases started to increase in mid-June, curbing
consumption and sending the economy downhill," said Daisuke Uno,
chief strategist at Sumitomo Mitsui Bank.
The virus is now spreading to U.S. Midwestern states even as
numbers from Sunbelt states show some signs of improvement.
The economy has suffered heavily, with advance gross
domestic product (GDP) data showing contraction of an annualised
32.9% in the second quarter, the quickest pace since the Great
Depression. High-frequency data suggests the economy is losing steam in
recent weeks after a rebound from rock-bottom levels hit in
April.
The U.S. Labor Department data showed initial claims for
unemployment benefits increased 12,000 to a seasonally adjusted
1.434 million in the week ending July 25, a sign that recovery
in the employment market is stalling.
Washington is seeking to respond with further fiscal aid but
partisan differences have so far hindered an agreement, just a
day before a federal jobless benefit was set to expire, leaving
investors nervous. Democrats favour extending the extra $600-per-week in
payments to those thrown out of work by the pandemic while
Republicans want to slash it to $200 for fear of over-spending.
The U.S. government has already spent $3 trillion for
pandemic stimulus while the Federal Reserve flooded the banking
system with dollars through its aggressive easing policy.
"The U.S. has been quite prodigal and the market is starting
to ask, who is going to pay the bills for all of this?" said
Bart Wakabayashi, Tokyo branch manager of State Street Bank.
Rubbing salt into the dollar's wound, Trump raised the idea
of delaying the Nov. 3 U.S. elections, although the notion was
immediately rejected by both Democrats and his fellow
Republicans in Congress - the sole branch of government with the
authority to make such a change. "The mere suggestion by Trump of a delay does play to
concerns that the election result will be challenged in November
(should Trump lose), and that, because of the likely larger than
usual share of votes via mail in ballots due to the pandemic, we
might not now (get) the result on election night itself," wrote
Ray Attrill, head of FX strategy at National Australia Bank in
Sydney.
Leading the charge against the U.S. dollar was the euro,
which has gained traction after European Union leaders agreed
this month to a 750 billion euro ($891.45 billion) economic
recovery fund, taking on debt jointly in a major boost to
regional cooperation.
The euro hit a two-year high of $1.1905 and last traded at
$1.1883 EUR= , having gained 5.8% so far in July, the biggest
gain in a decade.
Against the yen, the dollar hit a 4 1/2-month low of 104.195
yen and last stood at 104.36 JPY= , having lost 3.3% this
month.
Likewise the British pound stood at $1.3122 GBP=D4 after
hitting a 4 1/2-month high of $1.3143.


($1 = 0.8413 euros)