Currencies

Dollar recovers from 2-year trough on weak data, Fed outlook

A hand is shown holding a wad of hundred dollar bills.
Monica Murphy | Getty Images

Weekly U.S. jobless claims on Thursday once again surged over 1 million, which helped the dollar solidify gains it made on Wednesday after less dovish-than-expected minutes from last month's U.S. Federal Reserve policy meeting lifted the greenback off a two-year low.

The dollar index has climbed about 1% from the two-year low of 92.124 hit on Tuesday. Mid-morning on Thursday the index was roughly flat on the day at 92.954, but was broadly maintaining the previous days' gains as weak economic data helped the safe-haven currency.

Other safe havens like the Japanese yen, also benefited, last up 0.14% to 105.95 yen per dollar.

The Labor Department reported on Thursday that the number of Americans filing a new claim for unemployment benefits rose unexpectedly to 1.106 million for the week ended Aug. 15, from the 971,000 the week before. The previous week's level had marked the first time since March that new claims had registered below 1 million.

"The U.S. dollar mostly weathered disappointing news on the job market which weighed on broader markets and offered a haven lift," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Federal Open Market Committee minutes released on Wednesday prompted dollar bears to buy into the heavily shorted currency, fueling its biggest one-day surge in more than two months. Bears have reaped rich returns from shorting the greenback in recent weeks as the United States has struggled to tame the coronavirus pandemic and the unprecedented policy stimulus unleashed by the Fed had darkened the outlook for the safe-haven dollar.

But with short bets approaching historical extremes and a resurgence of COVID-19 cases in Europe, investors are turning less bearish on the greenback.

"Severe selling that drove the U.S. dollar to 27-month lows eased after minutes from the Fed's last meeting were read as less dovish. The details of the Fed's late July meeting stopped short of signaling an imminent shift to putting a lid on Treasury yields or allowing inflation to run hotter," Manimbo said.

The tone of the minutes "catalyzed some profit taking for one of the summer's blockbuster and profitable trades: shorting the greenback," Manimbo said.

The euro - the biggest beneficiary of dollar weakness - fell back below $1.19, though it was very slightly higher on Thursday at $1.184.