Dollar drops as US stimulus bill boosts risk-taking

Dollar drops as US stimulus bill boosts risk-taking

Illustration photo of U.S. Dollar. (Reuters Photo)

The dollar weakened against a basket of currencies on Wednesday as a $2 trillion stimulus bill helped boost risk appetite, and reduced demand for the safe haven currency.

Stocks surged for a second day as U.S. senators were due to vote on a bipartisan package of legislation to alleviate the devastating economic impact of the coronavirus pandemic, hoping it will become law quickly. Investors are also likely reducing dollar exposure ahead of Thursday’s jobless claims data, which is expected to show a surge in Americans filing for benefits as businesses close across the country in an attempt to curb the spread of the virus.

“Today’s developments are a good excuse to pare back on bullish bets on the dollar,” said Joe Manimbo, senior market analyst at Western Union Business Solutions, in Washington.

“But the sentiment is still positive (for the dollar) as uncertainty remains high about the economic damage from the virus.” New York's governor on Wednesday said there were tentative signs that restrictions were slowing the spread of the coronavirus in his state, even as the public health crisis deepened in hard-hit New Orleans and other parts of the United States.

Jobless claims on Thursday are expected to rise to around a million, from 281,000 the previous week, according to the median estimate from a Reuters poll of economists. The dollar index fell 0.81% to 101.87. Sterling jumped 1.33% to $1.1913. The euro gained 0.91% versus the greenback to $1.0885.

The single currency was also boosted after the German lower house on Wednesday suspended the country's constitutionally enshrined debt brake, approving a massive stimulus package by Chancellor Angela Merkel's government.

Germany's economy could contract by as much as 20% this year due to the impact of the coronavirus, an Ifo economist said on Wednesday, as German business morale tumbled to its lowest level since the global financial crisis in 2009. Investors are also continuing to absorb the Federal Reserve’s unprecedented announcement on Monday that it would launch unlimited quantitative easing, and how that will impact the greenback.

“QE was first introduced back in 2008, the dollar initially weakened but then recovered to even stronger levels. We believe that dynamic will likely unfold now,” said Win Thin, global head of currency strategy at Brown Brothers Harriman in New York.

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