The dollar retreated on Wednesday in choppy trading, as generally solid U.S. economic data and improving European numbers diminished its appeal as a safe haven, though the currency’s outlook remained upbeat given renewed risks posed by the novel coronavirus.
The greenback kicked off the third quarter with a decline against currencies that perform well in times of risk appetite such as the Australian, New Zealand, and Canadian dollars. It also fell against the euro and sterling.
Analysts said the dollar could still gain, with the resurgence of COVID-19 cases and the potential for renewed lockdowns in U.S. states deemed hot spots.
“In a service economy like the U.S., those that generate the highest number of jobs are in the high-contact businesses such as restaurants, movie theaters, and exhibition parks, which I think will come to a grinding halt,” said Boris Schlossberg, managing director at BK Asset Management in New York.
“There’s a significant risk of reclosing some of the states. There’s still a lot of risk-off flows, and the dollar could be the beneficiary of those flows,” he added.
Also on Wednesday, the Federal Reserve released the minutes of its last policy meeting and said the U.S. economic outlook remains highly uncertain and reiterated that a full economic recovery hinges on the virus being under control.
The dollar briefly extended losses against the yen and euro after the minutes.
“The minutes underlined the message from the economic projections that officials are fairly downbeat about the economic outlook,” said Andrew Hunter, senior U.S. economist at Capital Economics.
The dollar, meanwhile, reacted little to the ADP National Employment Report, which showed June private payrolls increased by 2.369 million jobs. Data for May was revised upward to show payrolls surging 3.065 million, tracking a surprise rebound in job reported by the government, instead of tumbling 2.76 million as previously estimated.
The dollar did lose ground as a safe haven, after U.S. manufacturing data showed a reading of 52.6, suggesting an expansion for the month of June.
In Europe, IHS Markit’s final euro zone Manufacturing Purchasing Managers’ Index moved closer to the 50 mark separating growth from contraction in June.
In afternoon trading, the dollar was down 0.3% against a basket of currencies =USD at 97.15.
Although the dollar has acted as a haven currency for much of the pandemic, U.S. fundamentals have also played a major role, meaning it can appreciate on better-than-expected data.
Against the yen, the dollar fell 0.4% to 107.47 yen JPY=EBS. Analysts said the yen’s rise was safe haven-related given declining stock markets, especially in Asia.
The euro, meanwhile, rose 0.2% to $1.1248 EUR=EBS. The currency rallied 6% against the dollar in May and early June.
The Australian AUD=D3 and New Zealand dollars NZD=D3 both rose against the greenback.