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Dollar strengthens as virus fears dent risk appetite

Kitco News

(Reuters) - The U.S. dollar gained on Thursday due to safety buying as fears grew over a rapid rise in coronavirus infections in some U.S. states, and as trade tensions worsened between the United States and the European Union.

The number of new daily cases around the country climbed to a near-record high. Texas halted its phased economic reopening in response to a jump in COVID-19 infections and hospitalizations.

Over 36,000 new U.S. cases were recorded on Wednesday, a few hundred shy of an April 24 record high, making investors more pessimistic about the chances of a quick economic recovery.

“It’s really fast accelerating in a lot of U.S. states, which is going to continue to be a problem for markets,” said Erik Nelson, a macro strategist at Wells Fargo in New York.

Data on Thursday showed weak demand is forcing U.S. employers to lay off workers, keeping new applications for unemployment benefits extraordinarily high, even as businesses have reopened.

New orders for U.S.-made capital goods rebounded more than expected in May, but recouped only a portion of the prior two months’ declines.

Forex markets have mostly tracked moves in equities as risk sentiment changes. Wall Street was mixed on Thursday following the S&P 500’s worst day in two weeks. [.N]

The U.S. dollar index was last up 0.18% on the day at 97.41.

A dispute between the United States and the European Union, in which Washington is flagging possible changes in tariffs on EU goods, also hurt risk sentiment.

The euro slipped as riskier assets in the region, including Italian bonds, weakened, and as the European Central Bank fought back against a German court challenge to its money-printing plans.

“There’s a little bit of unease going on in the European financial markets, which is probably weighing on the euro,” said Nelson.

The ECB also said it will offer euro loans against collateral to central banks outside the euro area to backstop funding markets amid the coronavirus pandemic.

The euro was last down 0.32% at $1.1214.

The dollar gained 0.16% against the Japanese yen to 107.19 yen.

Some strategists pointed to a lack of momentum in currency markets and said demand was being driven in part by investment funds, corporations and other institutions making end-of-period adjustments to their balance sheets.

“We are at month-end, quarter-end and half-year end, and both corporations and institutions are rebalancing, and that is driving the market in the short term,” said Thomas Anderson, managing director at moneycorp North America.

Additional reporting by Karen Brettell in New York; Editing by Aurora Ellis

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