• Edwick Haron

Forex - Dollar Drifts as Deadlock Drags on; Pound Absorbsakes Jobless Blow

The dollar was little changed in early trading in Europe Tuesday, with no breakthrough in the U.S. fiscal stimulus talks to push it in either direction.

Risk appetite was supported somewhat by reports of a decline in hospitalizations in the U.S. due to the Covid-19 virus, strengthening confidence that the pandemic is coming back under control in response to more restrictive measures in the south and west of the country in June and July.

The euro was quiet ahead of the first big sentiment indicator of the month in Europe, in the shape of the Zew index. At 3 AM ET (0700 GMT), it was unchanged at $1.1737.

Consensus expectations for the ZEW are for a modest decline in the main index to 58 from 59.3 in July, although the more important number will arguably be the sub-index for Current Conditions, which is expected to improve to -68.8 from -80.9.

The euro was also flat against sterling, rising less than 0.1% to 0.8982 after U.K. labor market data showed the biggest fall in employment since 2009 in the three months through July. Some 220,000 jobs were lost and the number of people claiming jobless benefits soared by 94,400, well above the consensus forecast of 10,000 and only partially offset by a downward revision to June’s figures.

Dave Ramsden, a member of the Bank of England’s Monetary Policy Council, told The Times in an interview that the Bank is still ready to add stimulus if the economy weakens again.

Sterling also edged down by 0.1% against the dollar to $1.3060, keeping some support after a reasonably solid survey from the British Retail Consortium, which suggested that retail sales were 3.2% higher in July than a year ago.

Pantheon Economics analyst Samuel Tombs noted that the BRC figures may flatter the underlying trend, since  “services spending likely also has benefited from the release of pent-up demand and the running down of “enforced” savings.” He said this was unlikely to continue as the labor market weakens further.

Elsewhere, the Turkish lira strengthened modestly after sharp losses last week on fears of a looming balance of payments crisis. The dollar fell 0.5% to 7.2958 lira.

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