By Peter Nurse

Investing.com – The dollar edged higher in early European trading Monday, maintaining its recent strong tone as rising Covid-19 cases threaten to derail the global economic recovery, prompting a flight to safety.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 92.828, not far removed from the recent three-month high of 92.832.

EUR/USD was marginally lower at 1.1803, just above last week's three month low of 1.1772, USD/JPY fell 0.1% to 109.97, GBP/USD dropped 0.1% to 1.3754, around its lowest for more than a week, while the risk-sensitive AUD/USD fell 0.3% to 0.7382, its weakest level since December.

The greenback has benefited of late from investors becoming more risk averse as rising numbers of Covid-19 cases threatened to halt the tepid global economic recovery.

The majority of the new cases had been seen in southeast Asia, but infections are now also rising in the U.S. and Europe, even as England lifts most of its social restrictions.

U.S. cases of Covid-19 were up 70% over the previous week and deaths up 26%, with outbreaks occurring in parts of the country with low vaccination rates, U.S. Centers for Disease Control and Prevention Director Rochelle Walensky said Friday.

The global seven-day average of daily new Covid-19 cases is over half a million for the first time since May, according to Reuters data.

Also of interest this week will be Thursday’s policy meeting of the European Central Bank, especially after last week’s release of the central bank's strategic review.

“The distribution of probabilities is skewed to lower EUR/USD next week,” said analysts at ING, in a note. “No change in the ECB bias is unlikely to be enough to send the euro higher. At the same time, any ECB shift towards the dovish interpretation of the strategic review would underscore the recent downward EUR/USD trend.”

Elsewhere, USD/CNY rose 0.1% to 6.4822 ahead of Tuesday’s meeting of China’s central bank, at which there is an outside chance the benchmark loan prime rate is lowered.

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The People’s Bank of China recently lowered the reserve requirements for its banks to help underpin its stuttering economic recovery, leading to speculation surrounding its prime rate.

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