U.S Dollar Declines as Risk-Taking Returns
The United States dollar declined on Thursday as the risk-aversion that supported the dollar earlier in the week eased. Even the suggestion from the Federal Reserve Wednesday that asset purchase tapering could begin by the end of the year and be completed by the middle of 2022 was not enough to maintain the dollar’s momentum.
The DXY, an index that monitors the dollar trend, slipped to a one-week low of 92.98 on Thursday, well below the high of 93.51 right after the FOMC announcement on Wednesday afternoon.
US data released Thursday morning included a large gain in the index of leading indicators, but also a surprise increase in initial jobless claims and declines in the IHS Markit’s preliminary estimates of manufacturing and services conditions in September.
Friday’s schedule will feature August new-home sales and appearances by Federal Reserve officials that may add to the conversation after the Federal Open Market Committee’s shift toward tighter monetary policy.
A quick summary of foreign exchange action on Thursday shows that EUR-USD peaked at 1.1750, up from 1.1711 at the opening. Inflation concerns lifted the pound and euro, with markets expecting a shift toward monetary policy tightening in Europe like that seen from the Federal Reserve.
GBP-USD lifted to four-day highs of 1.3750 after the Bank of England decision to leave rates and asset purchases unchanged but raise concerns that bottlenecks are causing inflationary pressures. Markets see this as a message that monetary policy tightening will occur sooner than previously expected.
USD-JPY rose to two-week highs of 110.20, as the shift toward risk-taking impacted the yen more than the dollar. Rising US yields added support to the dollar as well, putting the pair above the 110.00 level it has circled over the last months.
USD-CAD slipped to 1.2650 after the US data from overnight highs of 1.2796. Higher oil prices supported the Canadian dollar, while weaker-than-expected Canadian retail sales appeared to have little impact on the pair.
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U.S Dollar Declines as Risk-Taking Returns
