2020 June, 2, 05:20:14 PM

The Dollar Has Sold Off In Early European Trade Monday

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(Investing.com):- The dollar has sold off in early European trade Monday, as fewer investors seek this safe haven amid rising optimism about the global economic recovery, and as U.S. President Trump offers up a measured response to China’s move to tighten control over Hong Kong.

At 2:50 AM ET (0650 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 97.957, down 0.4%, having touched an 11-week low of 97.877 earlier Monday. USD/JPY fell 0.2% to 107.59.

“Market participants believe that the worst of the health and financial and economic crises are now behind us. That’s supportive of commodity prices...and if we’re past the worst of it, then commodity currencies tend to do well and the U.S. dollar tends to do poorly in the early stages of a recovery,” Commonwealth Bank of Australia FX analyst Joe Capurso told CNBC.

The AUD/USD pair jumped 1.3% to 0.6748 and the NZD/USD pair was up 0.8% to 0.6248.

Helping the risk-on tone, an official business survey from China showed its factory activity grew at a slower pace in May but momentum in the services and construction sectors quickened.

Additionally, President Trump decided not to end phase one of the U.S.’s trade deal with China when he laid out his response to China’s national security law for Hong Kong and Macau on Friday, although he did vow to end Hong Kong's special status.

USD/CNY traded at 7.1176, down 0.2%, with the yuan recovering slightly.

However, Goldman Sachs sees the yuan falling to its lowest since 2008 over the next three months amid uncertainty over U.S. policy toward China.

Goldman sees the yuan falling to 7.25 per dollar on a three-month horizon before recovering toward 7.15 per dollar over six months and 7 per dollar in one-year. That’s up from targets of 7.15 per dollar, 7.05 and 6.90 previously.

The euro has continued to strengthen Monday, having been boosted by last week’s EU stimulus package.

Markets are also awaiting a meeting of the European Central Bank on Thursday where it is widely expected to raise its asset-buying by around 500 billion euros to 1.25 trillion.

EUR/USD traded at 1.1140, up 0.4%, after climbing 1.8% last week.

Also on the rise is sterling, with the U.K. loosening months-long lockdown measures. The government announced the resumption of competitive sport from Monday.

Another round of Brexit talks gets underway on Tuesday ahead of the June 18-19 EU summit by which time London needs to make up its mind about asking for an extension to the transition agreement.

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