Dollar on backfoot as hopes fade for U.S. stimulus deal

By Stanley White

TOKYO (Reuters) – The dollar nursed losses against most of its peers on Thursday amid fading hopes for a compromise between Republicans and Democrats over additional economic stimulus.

In Asia, the focus was on the Australian dollar ahead of data that is expected to show slowing jobs creation and rising unemployment as a resurgence of the coronavirus rocks the economy.

The greenback was hampered by a decline in Treasury yields, but analysts say this is likely only a temporary setback because U.S. lawmakers will eventually agree to more stimulus to support economic recovery from the coronavirus.

“The dollar needs positive news on stimulus to rise further, but I’m sure we’ll get there, because these politicians can’t go back to their constituencies empty handed,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“Once this happens, gains in dollar/yen could be a catalyst for dollar gains against other currencies.”

Against the euro , the dollar traded at $1.1786 following a 0.4% decline on Wednesday.

The British pound held steady at $1.3034.

The dollar was quoted at 0.9122 Swiss franc after falling around half a percent against the safe harbour currency during the previous session.

The dollar fared slightly better against the yen, trading at 106.87, near a three-week high.

President Donald Trump accused congressional Democrats on Wednesday of not wanting to negotiate over a U.S. coronavirus aid package as top Republican and Democratic negotiators traded blame for a five-day lapse in talks over relief legislation.

The pandemic has taken a particularly heavy toll on the United States, where it has killed more people than any other country. Millions of U.S. workers have lost jobs, and supplemental federal unemployment benefits expired last month.

Market sentiment has swung between optimism and pessimism, but analysts argue that more stimulus is the most likely outcome because without it the U.S. economic recovery could stall.

The U.S. dollar index against a basket of major currencies fell 0.3% on Wednesday but is still well above the two-year low it reached last week.

Elsewhere in currencies, the Australian dollar was little changed at $0.7165 as traders braced for the closely-watched jobs report for July.

A resurgence of coronavirus cases in Melbourne has rattled confidence in Australia’s economy.

Across the Tasman Sea, the New Zealand dollar bought $0.6577, stabilising after the country’s central bank expanded quantitative easing and flagged the prospect of negative interest rates.

(Reporting by Stanley White; Editing by Sam Holmes)