By Peter Nurse
Investing.com - The dollar handed back early gains in European trade Wednesday, as President Donald Trump’s twitter barrage created volatility.
At 3:15 AM ET (0715 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.737, while USD/JPY rose 0.1% to 105.78.
Elsewhere, GBP/USD rose 0.3% to 1.2919, while the risk-sensitive AUD/USD climbed 0.5% to 0.7140.
Trump's decision, announced via Twitter, to call off stimulus talks until after the Nov. 3 presidential election increased downside risks for an already shaky U.S. economy, with the Covid-19 virus still running rampant through many states, and consequently boosted the dollar as traders deserted more risky currencies.
“This is a curious decision. Dragging out the talks but reaching no satisfactory conclusion, President Trump could at least have claimed that the fault lay with the opposition,” said ING’s Robert Carnell, in a research note.
“By unilaterally pulling the plug, at a time when many states are finding their ability to finance supplemental unemployment insurance challenged by lack of funds, this seems to be a gamble with a low probability of paying off.”
Subsequent tweets from Trump during Asian hours on Wednesday, calling for support for airlines and the Paycheck Protection Program, suggested that he may have had at least a partial change of heart, and this has changed sentiment.
Federal Reserve Chairman Jerome Powell had warned on Tuesday of the dire consequences for the U.S. economy if the coronavirus was not effectively controlled, calling for more economic assistance.
The minutes from the U.S. central bank's most recent meeting, due later in the session, are now firmly into focus, while several Fed speakers are also due to speak. If fiscal stimulus is slow in coming, central banks are going to be placed under even more pressure to add monetary largesse to try and boost their respective economies.
German industrial production fell 0.2% in August, a much weaker result than the 1.5% gain expected, yet EUR/USD rose 0.2% to 1.1753.
“At face value, today’s industrial production data is a disappointment. After two strong months in May and June, German industry is clearly struggling to gain further momentum,” said ING’s Carsten Brzeski, in a research note. “However, even if industrial production remains unchanged in September, the quarterly growth rate would still be around 10%.”
Also of note, Poland's central bank holds its next rate-setting meeting later Wednesday, and all 24 economists by surveyed by Bloomberg predict benchmark borrowing costs will be left at a record-low 0.1%.
Record new cases of Covid-19 are reigniting concerns about Poland’s economic outlook and strengthening the case to keep interest rates near zero.