Dollar clings to gains on fears of new COVID-19 cases, U.S.-Sino tensions

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LONDON (Reuters) – The U.S. dollar clung to gains on Tuesday on growing fears about a second wave of coronavirus infections and after the Federal Reserve played down the likelihood of negative interest rates, boosting the currency’s yield attraction.

FILE PHOTO: U.S. dollar banknote is seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/Illustration U.S. Fed policymakers say they will do what it takes to cushion an economy crushed by widespread lockdowns aimed at slowing the spread of the coronavirus but likely stop short of cutting interest rates to below zero.

New coronavirus infections have been found in China, South Korea and Germany, where respective governments have eased lockdown restrictions.

A re-emergence of novel coronavirus cases could dent a global economic recovery which was supposed to be propelled by an injection of monetary and fiscal stimulus.

«While the numbers of cases was relatively small, they do play into market fears over the threat posed by a second wave of COVID-19 infections and highlight the challenging path ahead for the global economy,» said Lee Hardman, currency analyst at MUFG.

The euro was last up slightly against the U.S. currency at $1.0820 EUR=EBS , though still not too far from the $1.0636 low touched at the end of March when the pandemic sent markets into turmoil.

Graphic – Euro steady vs dollar but close to March low: here

Other majors nursed losses, except the yen which increased by 0.2% to 107.47 versus the dollar JPY=EBS .

The Swedish crown fell the most, last down 0.4% to 9.83 against the dollar SEK=D3 , though the Australian dollar AUD=D3 was the biggest mover in Asian trading, dipping to a five-day low of 0.6432 after China banned some Australian meat imports. It later pared losses as Australia’s trade minister downplayed the issue as a technicality.

The greenback was also supported by the possibility of President Donald Trump instructing a federal pension fund to not buy Chinese equities, making investors cautious on U.S.-Sino relations.

The White House on Monday named three nominees to sit on a board that oversees federal employee pension funds, a move that could see the reversal of a decision to allow one of the funds to invest in Chinese companies under scrutiny from Washington.

Trump also said he opposed re-opening «Phase 1» trade negotiations after Chinese state-run Global Times floated the idea on Monday.

Reporting by Olga Cotaga; Editing by Kirsten Donovan