© Reuters.
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© Reuters.

By Peter Nurse

Investing.com – The dollar edged higher in early European trade Tuesday, bouncing off a two-year low, ahead of a Federal Reserve meeting and amid hopes for prompt delivery of the next U.S. fiscal rescue package.

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 93.810, recovering from the 93.448 low last seen in May 2018. was up 0.2% at 105.58, was down 0.1% at 1.2868.

These small gains come ahead of the Fed meeting, that starts later on Tuesday, and Friday’s deadline for U.S. Congress to extend unemployment benefits. Both of these events are unpredictable enough for traders to seek temporary refuge in this safe haven.

Republicans unveiled their latest $1 trillion stimulus package on Monday, which doesn’t leave much negotiating time to see whether a compromise between this plan and the Democrats $3.5 trillion proposal can be reached before some of the earlier measures expire at the end of the week.

That said, the “the bar for any reversal in the dollar decline seems to be set rather high,” said analysts at ING, in a research note. “After the EU summit led to rises in the euro and cyclical currencies vs the U.S. dollar last week, the dollar now faces a mix of geopolitical tensions and uncertainty about the U.S. economic recovery. “

The durable goods release came in better than expected Monday, but the increase in Covid-19 cases throughout many of the more populous states in the U.S. has resulted in a pause in the U.S. jobs recovery. This is something the Federal Reserve will consider in its two-day meeting.

“We expect the Fed to keep an accommodative stance in place, particularly given the recent rise in the US Covid-19 cases and the accompanying downside risk to the U.S. economic outlook,” ING added.

Elsewhere, was down 0.2% at 1.1733.

“We continue to see upside in the cross although our 1M forecast has already been reached; look for 1.1815 (Sep-18 high),” said analysts at Danske Bank, in a research note.

“On top of concerns about U.S. growth, virus development and tensions with China, the tailwind for EUR/USD is the result of better news out of the euro area. Yesterday, a decent German IFO business confidence number added to the positive euro area picture as the forward-looking expectations index beat consensus by a wide margin,” Danske Bank added.

 

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