U.S. Dollar Declines on Shift in Asset Price Tapering
The US dollar declined on Monday, with the dollar index (DXY) falling to 93.03 from the nine-month high of 93.73 on Friday following a perceived shift in the Federal Reserve’s timing to begin asset price tapering after Dallas Fed President Robert Kaplan’s slightly more dovish talk prompted much of the pullback as equity markets anticipated accommodation for longer.
US data were mixed, with an upside surprise in July existing home sales, but weaker-than-expected, though still strong, readings for the IHS Markit surveys provided some offset.
Tuesday’s US calendar features new-home sales, which are expected to rise in July after recent declines. The week’s main events, the release of the PCE price index and Fed Chair Jerome Powell’s speech to the virtual Jackson Hole conference will be on Friday.
A quick summary of foreign exchange action on Monday shows that EUR-USD held in a 1.1716 to 1.1738 trading band since the US open, up from Asian lows of 1.1693. The dollar has been pressured by the belief that tapering will be delayed, so the outlook for the pair is to the upside at least until Powell’s speech at the end of the week.
GBP-USD rallied from 1.3615 lows in Asia to 1.3725 into the London close as risk-taking lifted the pound and the dollar fell.
USD-JPY headed lower in the US morning trade, with dollar weakness the key factor. However, COVID cases continue to rise in Japan and lockdowns have been called for by some to cut off a more widespread outbreak. The Japanese government has not taken any further steps to this point.
USD-CAD reversed sharply from the eight-month high of 1.2949 on Friday, dropping to 1.2654 in afternoon trading. The falling dollar and rising oil prices have put downward pressure on the pair.
U.S. Dollar Declines on Shift in Asset Price Tapering
