The dollar weakened slightly in early European trade Monday, weighed down a touch by U.S. authorization of a new coronavirus treatment, but losses have been minimal as traders look for guidance to future U.S. monetary policy from the Federal Reserve’s annual Jackson Hole retreat later in the week.
At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.135. USD/JPY was largely flat at 105.81 and GBP/USD was up 0.2% at 1.3107.
The U.S. Food and Drugs Administrations on Sunday said that it had issued ‘emergency use approval’ for the use of blood plasma from recovered patients as a treatment option for certain patients suffering from the effects of the Covid-19 virus. The announcement comes at the start of a week that will see President Donald Trump formally receive the Republican Party’s nomination for re-election at its national convention.
This has helped the ‘risk-on’ tone, to the detriment of the greenback, but losses have been minor as many investors are waiting for more definitive news of a credible vaccine.
Additionally, the main focus this week is likely to be on the Federal Reserve, and Governor Jerome Powell’s opening speech at the Jackson Hole conference, even if it’s a virtual event.
Investors are expecting to hear news about the central bank’s long-awaited review of its monetary policy framework.
“Once again, the market will be on the look-out for any indications that the Fed is close to adopting Average Inflation Targeting and to better understand the conditions that would prompt Yield Curve Control,” said analysts at ING, in a research note.
The quantitative easing that the Fed has deployed so far has flooded financial markets with excess liquidity and weighed on the dollar. Last week the dollar index fell to the lowest level in more than two years.
Elsewhere, EUR/USD edged higher Monday, gaining 0.1% to 1.1802, but the single currency has pulled back slightly from a two-year high versus the dollar reached last week following disappointing manufacturing and services sector data for Europe released on Friday, against a backdrop of rising numbers of Covid-19 cases.
“With Covid cases resurgent in many parts of the world, the fear is now that we’ve seen the best of the recovery figures and that V-shape expectations will take a knock in September,” added ING.
The common currency’s next major hurdle is the release of the closely-watched German Ifo sentiment survey on Tuesday.