Harry Dempsey and Hudson Lockett
The dollar index, which measures the US currency against a basket of half a dozen peers, slipped 0.3 per cent on Tuesday, extending its losses to more than 10 per cent since its coronavirus crisis-induced March high.
The drop in the dollar helped lift sterling to its highest level since December 2019. The pound rose as much as 0.3 per cent to $1.3418 on Tuesday while the euro continued its ascent to reach $1.1997.
“The dollar faces an uphill battle from here,” said Gene Frieda, a global strategist at Pimco.
Mr Frieda said unprecedented fiscal support and more accommodative monetary policy from the Federal Reserve, combined with an uneven economic recovery in the US, was likely to weigh on the dollar “in all but the most extreme” scenarios.
The Fed’s decision last week to adopt an inflation policy that allows for overshoots above 2 per cent has placed renewed pressure on the US currency, analysts said.
Stocks in Europe pushed higher on Tuesday, although London’s FTSE 100 slipped 0.6 per cent following a national holiday a day earlier. The continent-wide Euro Stoxx 600 rose 0.3 per cent, helped higher by Frankfurt’s Xetra Dax adding 0.6 per cent.
The gains for equities came ahead of the release of the final manufacturing purchasing managers’ indices for August, which will give an indication on the pace of economic recovery from the Covid-19 shock.
Sven Jari Stehn, chief European economist for Goldman Sachs, said that Europe’s economic recovery was undergoing a “summer wobble”.
Rising coronavirus cases have led the region’s governments to put the economic reopening on pause and tighten coronavirus-related restrictions. The bank lowered its third-quarter GDP forecast for Europe from growth of 8.9 per cent to 8 per cent, largely due to lower growth in Spain and France.
Futures markets tipped US stocks to add 0.3 per cent when trading begins on Wall Street.
In Asia-Pacific, Australian stocks tumbled after China detained an Australian television anchor in the latest escalation of tensions between Beijing and Canberra, with moves across the rest of Asia muted.
Australia’s S&P/ASX 200 fell as much as 2.5 per cent in early trading and closed down 1.7 per cent, after Canberra said Chinese authorities had detained Cheng Lei, an Australian journalist working for the country’s state-controlled broadcaster.
Ms Cheng’s arrest comes amid a deterioration in Sino-Australian relations sparked by Canberra’s call for an independent inquiry into the origins of the coronavirus pandemic in Wuhan. Beijing has since imposed trade sanctions on Australian beef and wine imports.
Robert Rennie, head of global market strategy at Westpac, said Ms Cheng’s detention was the latest in a series of “rolling signs of increased tension with our largest export partner” that was weighing on Australian equities.
Oil prices gained on the back of a weaker dollar, with international marker Brent crude climbing 1.1 per cent to $45.79 a barrel.