By Peter Nurse
Investing.com - The dollar edged higher in early European trade Wednesday, recovering a little from Tuesday’s two-year lows, helped by positive U.S. manufacturing activity and weak German retail sales
At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 92.377, having fallen Tuesday to its lowest level since April 2008 of 91.737. GBP/USD was down 0.1% at 1.3368, while USD/JPY was up 0.1% at 106.03.
Economic data published on Tuesday showed U.S. manufacturing activity accelerated to a nearly two-year high in August amid a surge in new orders. This followed similarly upbeat Chinese and European manufacturing indicators.
However, the overall tone remains one of dollar weakness.
“The Fed-induced narrative of lower nominal and real rates for longer has (a) taken away any prospects of upside potential from the dollar; and (b) allows investors to rotate into investment opportunities elsewhere,” said analysts at ING, in a note to investors.
That said, EUR/USD fell 0.1% to 1.1904 Wednesday, after briefly climbing above 1.20 for the first time since May 2018 during Tuesday’s session.
Weighing on the euro were German retail sales falling 0.9% on the month in July, dashing hopes that household spending in Europe's largest economy will prompt a recovery in the third quarter.
This followed comments from Philip Lane, the European Central Bank’s chief economist, who linked movements in this pair to the bank’s monetary policy.
“The euro-dollar rate does matter," Lane said late Tuesday, at an online conference. “If there are forces moving the euro-dollar rate around, that feeds into our global and European forecasts and that in turn does feed into our monetary policy setting."
This was the first sign of the ECB getting worried about the recent appreciation of the single currency, an important factor as the euro zone is heavily reliant on export markets for growth.
Elsewhere, AUD/USD dropped 0.2% to 0.7358 after Australia officially entered its first recession in nearly 30 years, after its second quarter GDP contracted by a record 7% quarter-on-quarter, its worst economic downturn on record.