By Peter Nurse
Investing.com - The dollar traded lower in early European trade Tuesday, although losses are minor as traders await direction from the latest U.S. consumer confidence readings but also from the Federal Reserve's annual Jackson Hole retreat later in the week.
At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 93.245. USD/JPY was up 0.1% at 106.11, while GBP/USD was up 0.2% at 1.3093.
The market has adopted a ‘risk-on’ stance Tuesday, helped by the aggressive stance from the Trump administration towards the authorization of potential Covid-19 treatments, as well as trade talks occurring between the U.S. and China aimed at resolving concerns around the Phase 1 trade deal reached between the two countries in January.
However, traders are waiting for more concrete guidance after the greenback's recent sharp fall - it's lost over 4% in the last two months. The U.S. August consumer confidence readings, due later in the day, are expected to rise slightly, but it’s the Fed that attracts the most attention.
Fed Chairman Jerome Powell will deliver a speech at Thursday’s virtual Jackson Hole symposium, and is widely expected to flag a looser policy in the future, with tweaks to how it defines its inflation target.
“Powell could hence put the USD in the (Jackson) hole if he aggressively hints of an upcoming combined YCC [Yield Curve Control] and AIT [Average Inflation Targeting] regime. If such regimes were to be announced in tandem, it would likely be USD negative, (extremely) gold positive and a final push for the ‘negative real yields forever’ bet,” said analysts at Nordea, in a research note.
Elsewhere, EUR/USD gained 0.1% to 1.1801, as the euro pushed higher against the greenback, helped by an upward-revision to an earlier estimate of German economic output.
Earlier Tuesday, data showed the German economy contracted by a record 9.7% in the second quarter. A dreadful number, but still better than the first reading that said the economy shrank by 10.1% in the period.
“The only good thing about all this data is that it provides a final glance in the rearview mirror,” said analysts at ING, in a research note. “Looking ahead, it does not take a rocket scientist to predict that the economy will have one of its best quarterly performances ever in the third quarter. All activity indicators point to a continuing increase during the summer months.”
Investors will now look to the release of Germany's Ifo Business Climate index, due at 0800 GMT, where a small rise is expected.