By Peter Nurse
Investing.com - The dollar edged higher in early European trade Wednesday, gaining back some recent losses, but these gains could be short-lived ahead of comments from Federal Reserve chair Jerome Powell from the 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 up 0.1% at 93.123. USD/JPY was largely flat at 106.34, while EUR/USD was down 0.2% at 1.1814.
“EUR/USD has been facing some downward correction after an extended rally, but we continue to see the pair’s fundamental drivers pointing at further strengthening and we, therefore, keep our 1-month target at 1.20,” said analyst Francesco Pesole at ING, in a research note.
These fundamental drivers were illustrated Tuesday by the German Ifo survey showed stronger-than-expected business sentiment, while U.S. consumer confidence tumbled to the lowest in more than six years due to concern about the coronavirus-induced job losses.
Overnight, the German government said it will extend its job support scheme through the end of next year, while French Prime Minister Jean Castex said his government will announce new stimulus measures on September 3.
Additionally, data due to be released later in the day is expected to show that U.S. durable goods orders slowed in July, with 4.3% growth month-on-month forecast for July. Orders grew by 7.6% month-on-month in June.
Attention is now focusing on U.S. Federal Reserve Chairman Jerome Powell, and his speech at Thursday’s Jackson Hole symposium, for guidance on the Fed's strategy moving forward.
“I expect Powell to use forward guidance to send a dovish message that rates will remain low for a long time, which feeds into dollar weakness. You could say we are in a long-term correction of excessive dollar strength,” Minori Uchida, head of global market research at MUFG Bank, told Reuters.
Elsewhere, GBP/USD was flat at 1.3150, having risen 0.7% against the dollar on Tuesday, with sterling shrugging off a lack of progress in trade negotiations between Britain and the European Union.
“Sterling’s net positions jumped to a five-month high, moving into net longer territory (+3% of open interest) in the week ending Aug. 18,” said ING’s Pesole.
“In our view, this continues to highlight how GBP is underpricing the risk of a no-deal outcome of current UK-EU trade negotiations, which in turn flags a non-negligible risk of more stress being built into sterling in the coming weeks.”