* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E
* Dollar holds strong gains against European currencies
* Response to second wave of virus rattles investors
* U.S. political uncertainty to limit dollar’s upside
* Aussie and kiwi fall on interest rate outlook
TOKYO, Sept 23 (Reuters) - The U.S. dollar rose against major currencies on Wednesday, supported by positive U.S. economic data and concerns about a second wave of coronavirus infections in Europe and Britain.
Both the Australian and New Zealand dollars were undermined by a dovish slant on policy by their respective central banks.
The Aussie hit a six-week low on growing expectations the Reserve Bank of Australia (RBA) may cut interest rates next month.
The kiwi dollar edged lower in choppy trade after the country’s central bank kept monetary policy unchanged but hinted at further easing to help the economy.
The greenback is likely to continue to grind higher in the short term as the coronavirus rattles sentiment in Europe, but uncertainty about this year’s U.S. presidential election means the dollar could be prone to more volatile swings.
“Some people are betting for more dollar strength against the euro, which looks overvalued,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“The picture in Europe has completely changed, because the economic recovery is stalling and there is a second wave of the virus, but I’m also worried about U.S. politics.”
The dollar edged up to $1.1675 per euro on Wednesday, which is the highest since July 27.
The pound bought $1.2721, near the lowest since late July, after British Prime Minister Boris Johnson unveiled on Tuesday new restrictions on business activity to tackle a second wave of the coronavirus.
The dollar rose to 0.9218 Swiss franc, adding to a 0.6% gain from Tuesday.
The U.S. currency rose to 105.98 yen.
On Tuesday, the greenback was bolstered by data showing U.S. home sales surged to their highest level in nearly 14 years in August, but comments from a prominent Federal Reserve official sent mixed signals.
The U.S. economy risks a longer, slower recovery and “recessionary dynamics” if Congress fails to pass an additional fiscal stimulus package, Chicago Federal Reserve President Charles Evans said.
It is possible for the Fed to raise interest rates before inflation starts to average 2%, Evans also said.
The dollar index, which pits the dollar against a basket of six major currencies, rose to 94.197 on Wednesday, the highest in two months.
Sentiment for the euro has slowly weakened as investors grow increasingly worried about surging coronavirus infections in countries like France and Spain, raising the risk of fresh lockdowns.
Many euro zone countries have reintroduced travel restrictions, forcing airlines to scale back passenger services after a relatively quick run up over the summer.
Traders in the pound and the euro are also worried that Britain and the European Union will fail to agree a free trade deal, which would cause additional economic strain.
The Australian dollar fell to a six-week low of $0.7116 after economists at Westpac changed their view and said they expect the RBA to lower interest rates to 0.10% from 0.25% at a meeting on Oct. 6.
The tone for the Aussie was also weak after a senior central banker on Tuesday flagged the prospect of currency market intervention and negative interest rates.
The New Zealand dollar lost 0.33% to $0.6612 after the Reserve Bank of New Zealand held its policy rate at 0.25%, but warned of job losses and business closures, which reinforced expectations it would move to negative interest rates in coming months. (Reporting by Stanley White; Editing by Christopher Cushing and Ana Nicolaci da Costa)
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