May 21, 2020 / 7:57 AM / 11 days ago

FOREX-Dollar gains as risk-taking appetite wanes

* Graphic: World FX rates in 2020

By Julien Ponthus

LONDON, May 21 (Reuters) - The dollar edged higher on Thursday as Sino-U.S. tensions and weak economic indicators in Europe dented sentiment after hopes of a quick economic recovery and further stimulus fuelled an overnight rally on Wall Street.

Against a basket of currencies the greenback rose 0.2% to 99.40 while U.S. stock futures were trading in the red.

The euro eased down 0.1% to $1.0972, giving up some gains secured after a Franco-German proposal for a pan-European Union fund propped up hopes the bloc could move closer to a fiscal union.

Stock markets across Europe opened in negative territory while shortly after the bell, data showed that France’s business slump eased not quite as much as expected in May.

Shortly after that, an indicator which tracks the manufacturing and services sectors showed that Germany’s recession eased in May but also less than anticipated.

“The rate of decline in activity has eased considerably since the peak of virus containment measures in April, but we are still a long way off business as usual and the path to recovery remains unclear,” IHS Markit economist Phil Smith said.

In Britain, weak inflation is driving bets that the Bank of England may cut interest rates below zero.

The pound remains under pressure against the greenback, slipping 0.3% to $1.2201, as well as against the euro, with a 0.3% fall at 89.90 pence per euro.

Japan reported its steepest drop in exports in more than a decade and cratering factory activity. The Japanese yen was down 0.3% at 107.800 per dollar.

The risk-sensitive Aussie was last at $0.6568 down 0.4%.

The dollar also rose 0.1% against the yuan in onshore trade to 7.0973.

Diplomatic relations between the world’s two biggest economies have soured in recent weeks with U.S. President Donald Trump attacking China’s handling of the coronavirus outbreak.

The latest salvo came when Trump took to Twitter late on Wednesday to accuse China of a “massive disinformation campaign” seeking to damage his re-election chances, “so they can continue to rip-off the United States.” (Reporting by Julien Ponthus; Editing by Mark Heinrich)

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