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Dollar rally fizzles as investors eye stimulus talks in Washington


By Caroline Valetkevitch and Saqib Iqbal Ahmed

NEW YORK (Reuters) - The U.S. dollar edged lower in choppy trade against a basket of currencies on Tuesday, choking off a recent rally fueled by dollar bears taking profits on short positions, while investors watched talks in Washington on the next round of coronavirus relief.

After its biggest monthly decline in a decade in July, the greenback started August on a firmer note as some investors trimmed short positions.

But the immediate outlook for the dollar remains tied partly to relief aid talks in Washington and the economic impact of new virus cases in the United States.

The White House and Democratic congressional leaders have reported some progress in discussions over a fifth major coronavirus aid bill, but they remain apart on a range of issues.

The U.S. Dollar Currency Index <=USD>, which measures the greenback's strength against six major currencies, was 0.16% lower after rising 0.6% over the previous two sessions.

"While a consolidation or a modest corrective rebound was inevitable after the sharp fall last month, market sentiment towards the dollar remains negative due to dominating concerns about the scale of the coronavirus pandemic in the U.S. and its devastating impact on the economy," Piotr Matys, senior emerging markets FX Strategist at Rabobank, said in a note.

Despite a slowdown in new U.S. virus cases and encouraging factory data, investors remained concerned about the U.S. economy. The next big U.S. data points will be weekly jobless claims and the July U.S. employment report this week, said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

The Aussie dollar was up 0.44% after the Australian central bank held policy steady.

(Reporting by Caroline Valetkevitch; additional reporting by Iain Withers in London and Tom Westbrook in Singapore; editing by Barbara Lewis, Gareth Jones, Jonathan Oatis and David Gregorio)

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