By Peter Nurse
Investing.com – The dollar traded higher in early European trade Wednesday, helped by a jump in U.S. yields ahead of a massive bond auction and amid hopes that the coronavirus outbreak is coming under control.
At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 93.736. was up 0.3% at 106.78 and was down 0.1% at 1.1732.
The yield on U.S. debt climbed by its most in two months overnight ahead of a record $38 billion auction later on Wednesday.
The move up in yields is driven by both repositioning ahead of big issuance this week and a sense that the U.S. recovery is broadening and looking more robust, said NAB senior FX strategist Rodrigo Catril, in a Reuters report.
Recent reports have suggested a decline in hospitalizations in the U.S. due to the Covid-19 virus, strengthening confidence that the pandemic is coming back under control.
Elsewhere, dropped 0.1% to 1.3045 after official figures showed the U.K. shrank by a record 20.4% between April and June, the largest contraction reported by any major economy to date.
This means the U.K.’s economy, the world’s sixth biggest, has entered a recession, its first since the financial crisis, as the previous quarter had also seen a gross domestic production contraction.
That said, sterling losses were minor as a sharp slowdown during the height of the lockdowns had been expected, and there were signs of recovery in the month of June alone when gross domestic product grew by 8.7% from May.
“The recession brought on by the coronavirus pandemic has led to the biggest fall in quarterly GDP on record,” Jonathan Athow of the Office for National Statistics said.
“The economy began to bounce back in June… Despite this, GDP in June still remains a sixth below its level in February, before the virus struck.”
From a technical point of view, GBP/USD risks further downside in the near-term, although within the broader 1.2950/1.3160 range, according to FX strategists at UOB Group.
“Downward momentum is beginning to improve, and GBP could drift lower to 1.3005. For today, a sustained decline below 1.3005 is not expected (next support is at 1.2950).”
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