FOREX-Dollar set for second week of gains as focus turns to Fed

Reuters

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    * Greenback gives back most of week's gains as COVID-19
fears ease
    * Euro softer after ECB pledged record low rates for longer
    * Aussie on course for fourth weekly slide as lockdowns
weigh
    * Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

    By Ritvik Carvalho
    LONDON, July 23 (Reuters) - The U.S. dollar was set for a
second week of gains after a turbulent few days when currencies
were buffeted by shifting risk appetite, with the market's focus
now on next week's Federal Reserve meeting.
    The dollar index  =USD , which measures the greenback
against a basket of peer currencies was up 0.2% for the week,
rising slightly on Friday to stand at 92.926.
    But that was off a 3-1/2-month high of 93.194 hit on
Wednesday, after strong Wall Street earnings helped investors
regain some of the confidence lost to earlier worries the Delta
variant of the coronavirus could derail the global economic
recovery.
    "Markets have re-focused on the pandemic, as the Delta
variant is leading to renewed measures to fight the virus,"
analysts at BofA Global Research said in a note to clients.
    "Moreover, the Delta variant is also highlighting the recent
slowdown in U.S. vaccination rates, which could hamper the
expected re-opening of the economy. Meanwhile, inflation also
continues to surprise to the upside."
    The analysts said they continue to expect most dollar upside
at the end of the year, led by an end-2021 euro/dollar forecast
of $1.15.
    The safe-harbour yen  JPY=EBS  weakened about 0.2% for the
week and last traded at 110.46 yen per dollar, down 0.3% on the
day.
    Meanwhile, the euro  EUR=EBS  traded flat over the period at
$1.1772, unmoved by purchasing manager surveys coming out of
France, Germany and the euro zone as a whole.  
    Euro zone business activity expanded at its fastest monthly
pace in over two decades in July as the loosening of more
COVID-19 restrictions gave a boost to services, but fears of
another wave of infections hit business confidence. 
    IHS Markit's Flash Composite Purchasing Managers' Index,
seen as a good guide to economic health, climbed to 60.6 in July
from 59.5, its highest reading since July 2000. urn:newsml:reuters.com:*:nZRN002DOC
 urn:newsml:reuters.com:*:nZRN002DOH  urn:newsml:reuters.com:*:nL8N2OZ22G
    The figures came in the wake of the European Central Bank's
meeting on Thursday, in which it pledged to keep interest rates
at record lows for even longer. ECB President Christine Lagarde
said a fresh wave of the pandemic could pose a risk to the
region's recovery, although she did offer a more balanced
economic outlook.  urn:newsml:reuters.com:*:nL4N2OY1OT
    While most analysts see the ECB's dovish pivot as weighing
on the single currency, those at TD Securities say it could push
up to $1.1851 in the near-term.
    "The lack of hints on future policy moves is a moderate
disappointment to those looking for a stronger dovish signal,"
they wrote in a research note. 
    The market's next major focus is the Federal Reserve's
two-day policy meeting that wraps up on Thursday. Since the
previous meeting on June 16, when Fed officials dropped a
reference to the coronavirus as a weight on the economy, cases
are spiking.  urn:newsml:reuters.com:*:nL1N2OW0XI
    Many economists, however, still expect the meeting to
produce some advancement in the discussions for a tapering of
stimulus.
    The British pound  GBP=D3  recovered from losses as steep as
1.3% for the week to trade just about flat at $1.3741, buoyed by
the recovery in risk sentiment even with COVID-19 cases broadly
on the rise.
    However, Australia's dollar  AUD=D3  - often viewed as a
proxy for risk appetite - slid 0.3% to $0.7360 on Friday and was
headed for a 0.5% drop on the week, which would be a fourth
straight weekly loss.
    With half the Australian population languishing under
lockdown, economists speculate the country's central bank could
increase stimulus rather than decreasing it at its next policy
meeting.
    "The balance of risks point to more weakness in AUD in the
near term," Commonwealth Bank of Australia strategist Joseph
Capurso wrote in a client note.

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World FX rates    https://tmsnrt.rs/2RBWI5E
Dollar set for second week of gains    https://tmsnrt.rs/3BztCLN
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 (Reporting by Ritvik Carvalho; additional reporting by Kevin
Buckland in Tokyo; editing by Philippa Fletcher and Pravin Char)
 ((Ritvik.Carvalho@thomsonreuters.com; +44 2075429406; Reuters
Messaging: ritvik.carvalho.thomsonreuters@reuters.net; Twitter
@ritvikcarvalho))

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