FOREX-Dollar dips after last week's climb as Fed doubts resurface

  • 8/23/2021
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* Graphic: World FX rates tmsnrt.rs/2RBWI5E LONDON, Aug 23 (Reuters) - The U.S. dollar declined broadly on Monday, after registering its biggest weekly rise in more than two months last week as some doubts about the course of U.S. monetary policy triggered profit-taking. Riskier currencies, including the Aussie, Norwegian crown and the Canadian dollar were among the major beneficiaries of a weaker dollar in quiet London trading, rising more than 0.5% each. The dollar index hit a nine-month high last week, climbing nearly 5% from May lows, as investors firmed up bets the U.S. Federal Reserve will start scaling back pandemic-era stimulus policies ahead of Europe and Japan. But Dallas Federal Reserve President Robert Kaplan, a well-known hawk, dented those expectations on Friday, saying he might reconsider the need for an early start to tapering if the virus harms the economy. “Kaplan said that he may adjust his view about asset purchase if the Delta persists, so a little dovish Fed comments is pushing the dollar down as rising delta concerns is negative for the dollar,” a trader at a Japanese bank said. The variant’s further spread might derail the Fed’s plans to taper its pandemic-era stimulus plan by the end of the year, according to some analysts. Fed Chair Jerome Powell, who has thus far mostly played down Delta’s repercussions, will discuss the economic outlook at the central bank’s Jackson Hole Aug.26-28 conference, in a speech that will be carefully parsed by traders eager for clues about the timing and pace of policy tightening. “Risk off is set to keep the dollar underpinned,” MUFG strategists said in a note. “While a cautious Fed should diminish the extent of dollar gains, some adjustment in our year-end FX forecasts to show less dollar depreciation will be required given COVID risks have picked up.” The dollar index, measuring its performance against other main currencies, dipped 0.2% to 93.29 but was close to 93.734 hit on Friday, which was its highest since early November. Monday’s decline was slightly at odds with the trend in fixed income markets with U.S. 10-year inflation-adjusted Treasury yields rising above -1% for the first time in nearly a month. Some investors, such as Stephen Jen who runs hedge fund Eurizon SLJ Capital, remain long-term dollar bulls. “Maybe I was too early in making this call, but a muscular U.S. economy that is centred on technology and one that embraces creative destruction will likely enjoy elevated trend growth in the years ahead,” Jen said. Elsewhere, the euro popped to a three-day high after data showed euro zone business grew strongly this month, though the pace of expansion slowed as fears new coronavirus strains may bring renewed restrictions continued to weigh on sentiment. The Australian dollar was among the major gainers after Prime Minister Scott Morrison said Australians must start to learn to live with COVID-19 when higher vaccination targets are reached. The New Zealand dollar edged 0.2% higher to $0.6854, still near Friday’s 9 1/2-month low of $0.6807, with the nation under lockdown to contain a Delta outbreak. In cryptocurrencies, bitcoin topped $50,000 for the first time since mid-May, and last traded 2.06% higher at $50,333.24. Reporting by Saikat Chatterjee; Editing by Tomasz Janowski Our Standards: The Thomson Reuters Trust Principles.

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