By Peter Nurse
Investing.com - The dollar has sold off in early European trade Wednesday, with riskier assets in demand as investors look for more fiscal stimulus amid signs of a global economic recovery.
At 3:05 AM ET (0705 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 97.362, down 0.3%, falling to levels last seen in the middle of March. USD/JPY was largely flat at 108.67.
EUR/USD traded 0.5% higher at 1.1220, trading above 1.12 for the first time since mid March, on hopes policymakers will continue to support the euro zone, despite the German government's failure to agree on a second big stimulus package Tuesday. The region’s weakest economies are still struggling to recover from the measures used to combat the coronavirus outbreak, although the gradual reopening of the European economy continued Wednesday as Italy lifted its quarantine regulations for visitors.
The European Central Bank is expected to increase its 750 billion euro ($840 billion) Pandemic Emergency Purchase Program, on Thursday, probably by around 500 billion euros.
Sterling has also posted gains against the U.S. dollar, up 0.5% at 1.2606, above 1.26 for the first time since mid April, in sympathy with a rally in global equity prices amidst steadily improving investor sentiment regarding the global exit from lockdown.
That said, the U.K. and EU still appear far from a solution to avoid a big disruption to trade after the post-Brexit transition period ends at the end of the year. The two sides started their last scheduled talks on the issue this week, and doubts remain about the likelihood of progress.
Earlier Wednesday, data showed that China’s services sector returned to growth last month for the first time since January.
USD/CNY traded 0.1% higher at 7.1089, but still off the 7.17 levels seen at the end of last week as the tensions between the U.S. and China were at their peak.
Additionally, the Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, rose 0.6% to fetch $0.6938, hitting a five-month high against the greenback, despite the country’s GDP falling 0.3% during the first quarter of 2020, a second straight quarterly contraction.