* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Saikat Chatterjee
LONDON, July 29 (Reuters) - The U.S. dollar fell to a
two-year low on Wednesday as pressure built on the Federal
Reserve to strike a dovish policy stance amid a surge in
coronavirus cases fuelling demand for riskier currencies like
the Norwegian crown and the Australian dollar.
Financial markets expect policymakers to hold fire on fresh
steps, but rising infection rates are leading some analysts to
predict strong forward guidance from the Fed on further policy
actions.
"Even if the Fed doesn't come out explicitly signalling more
policy support, the dollar's outlook remains weak thanks to the
diverging trends in coronavirus cases between Europe and the
U.S.," said Ulrich Leuchtmann, head of foreign exchange and
commodity research at Commerzbank.
Four U.S. states in the south and west reported one-day
records for coronavirus deaths on Tuesday and nationwide cases
stayed high. Against a basket of other currencies =USD , the dollar fell
0.4% to 93.41, its lowest level since June 2018. It has weakened
more than 3% since the last Fed meeting as yields on benchmark
U.S. Treasury debt have fallen more than 20 bps since then.
"These factors mean we should expect a decidedly more
pessimistic assessment of the outlook for economic growth," said
Derek Halpenny, head of research at MUFG Bank. "We should also
probably expect some focus on the U.S. dollar, given the notable
move we have had since the last meeting."
Investors will also be watching for any indications the Fed
will increase its purchases of longer-dated debt, implement
yield caps or target higher inflation than previously indicated,
building on recent massive stimulus measures.
Goldman Sachs on Tuesday said a potential Fed shift "towards
an inflationary bias" along with record high U.S. government
debt levels are raising "real concerns around the longevity of
the U.S. dollar as a reserve currency."
But John Vail, chief global strategist at Nikko Asset
Management said the greenback was still up 1% in the year to
date as measured by JP Morgan broad trade-weighted nominal
index, despite recent weakness.
EURO UP
The weakening dollar pushed the Australian dollar higher
with the currency trading at $0.7185 AUD=D4 , hitting a
15-month peak after data showed Australia's consumer prices fell
by a record in the second quarter.
The euro traded at $1.1762 EUR=EBS , up 0.3%, although it
has stepped back from Monday's 22-month high of $1.17815.
The dollar traded at 104.82 yen JPY=EBS , a four-month low
and down 0.25% on the day.
For investors, the euro's strength has been vindicated by a
recent fiscal stimulus deal reached by European Union leaders
last week with charts and derivatives expecting the single
currency to strengthen to $1.20 levels in the short term.
Elsewhere, the Turkish lira held near record lows after it
plunged 2% in minutes on Monday before reversing most of that
fall. One-week and one-year Turkish lira implied volatility
gauges jumped to their highest level in two months.
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US dollar valuations https://tmsnrt.rs/2P54FR9
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