FOREX-Equity rally, U.S. stimulus stalemate keep dollar on backfoot

* Dollar index down 0.3%
* Euro up 0.5%
* Yen flat
* Risk-on sentiment, equity rally dollar bearish - analysts
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, Aug 13 (Reuters) - The dollar fell to its lowest in
a week against a basket of currencies on Thursday, with analysts
pointing to equity market resilience and stalemate over
additional stimulus for the U.S. economy as reasons for its
weakness.
After losing 10% of its value from a peak in March, the
dollar index has been bouncing around its lowest levels in more
than two years since late July.
On Thursday, it traded 0.3% lower at 93.093 =USD . Against
the euro EUR=D3 , the dollar fell 0.5% to $1.1840, adding to a
0.4% decline on Wednesday.
Analysts note recent equity market resilience - despite
rising coronavirus cases, the stalemate over a new U.S. relief
package, and geopolitical tensions - only works against the
dollar.
U.S. stocks rallied on Wednesday with the S&P 500 index
.SPX reaching record highs.
"The S&P500 briefly touched record highs yesterday,
confirming the ability of equities to quickly shrug off negative
drivers to sentiment," said Francesco Pesole, FX strategist at
ING. "This remains a key point in favour of the dollar-bearish
argument."
Risk-on sentiment benefited the Australian dollar, as did
better-than-expected jobs data that eased concerns about a
persistent coronavirus outbreak in the Australia's
second-largest city, Melbourne. AUD=D4
The Japanese yen recouped some of its losses from the
previous day, trading 0.3% higher at 106.62 per dollar. But by
midday in London it gave up those gains and traded flat. JPY=
The British pound GBP=D3 rose 0.5% to $1.3099.
The onshore yuan CNY=CFXS briefly rose to a five-month
high before steadying at 6.9421 per dollar. U.S. and Chinese
officials meet Saturday to review their Phase I trade deal.
President Donald Trump accused congressional Democrats on
Wednesday of not wanting to negotiate over a U.S. coronavirus
aid package as Republican and Democratic negotiators traded
blame for a five-day lapse in talks over relief legislation.
"The question now is whether this will be enough to prompt a
slowdown/correction in the stock rally," Pesole said in a note
to clients.
"Latest evidence suggests investors may turn a blind eye to
the matter, and the balance of risks remains tilted to the
downside for the dollar today as well."
The pandemic has taken a particularly heavy toll on the
United States, where it has killed more people than in any other
country. Millions of U.S. workers have lost jobs, and
supplemental federal unemployment benefits expired last month.
Market sentiment has swung between optimism and pessimism,
but analysts argue that more stimulus is the most likely outcome
because without it the U.S. economic recovery could stall.