FOREX-Dollar wallows near 2-year low as virus dashes U.S. recovery hopes

* Dollar soft as U.S. relative strength in doubt
* Fed seen taking dovish stance amid coronavirus worries
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, July 29 (Reuters) - The dollar languished near
two-year lows on Wednesday as the United States struggled to
contain its coronavirus epidemic, dashing hopes for a quick
economic recovery and leading investors to question its relative
economic strength.
The U.S. Federal Reserve is also expected to strike a dovish
stance at its policy review later in the day and dollar bears
bet it could even hint at further easing down the road.
The dollar index against six major currencies stood at
93.713 .DXY , having touched its lowest level since June 2018
this week.
The euro stepped back from Monday's 22-month high of
$1.17815 to trade at $1.1723 EUR= .
The dollar changed hands at 105.04 yen JPY= , having hit a
4 1/2-month low of 104.955 in the previous session.
Its weakness stemmed from an eroding perception that U.S.
economic growth would be stronger than the rest of the developed
world and that investors could count on higher returns in the
dollar.
U.S. consumer confidence fell more than expected in July,
losing steam following two months of recovery, in a fresh sign
that rising COVID-19 infections are dampening consumption.
Four U.S. states in the south and west reported one-day
records for coronavirus deaths on Tuesday and nationwide cases
stayed high. "Given the concerns about the second wave of infections,
markets think the Federal Reserve is likely to take a dovish
policy stance," said Yujiro Goto, chief FX strategist at Nomura
Securities.
Investors will be watching for any indications that the U.S.
central bank will increase its purchases of longer-dated debt,
implement yield caps or target higher inflation than it has
previously indicated when it concludes its two-day meeting on
Wednesday.
Goldman Sachs on Tuesday noted that a potential Fed shift
"towards an inflationary bias" along with record high debt
levels by the United States government are raising "real
concerns around the longevity of the U.S. dollar as a reserve
currency."
Such worries are spurring a rush to gold, which last stood
at $1,963.5 per ounce XAU= , near its record high of $1,980.5
per ounce on Tuesday.
Also weighing on the dollar were uncertainties over an
additional fiscal package to support the economy.
Some Republicans in the U.S. Senate pushed back against
their own party's $1 trillion coronavirus relief proposal while
Democrats are calling for a much larger support including a full
extension of a $600-per-week enhanced coronavirus unemployment
benefit. The British pound fetched $1.2935, having hit a 4 1/2-month
high of $1.2952 GBP=D4 on Tuesday.
The Australian dollar traded at $0.7158, near its 15-month
peak of $0.7184 touched a week ago, ahead of local inflation
data.