U.S Dollar Trades Under Pressure over Fed’s Taper Fever
The US dollar remained under pressure Monday from Federal Reserve Chair Jerome Powell’s relatively dovish comments Friday. Powell’s speech virtually to the Jackson Hole conference confirmed asset purchase tapering could be appropriate before the end of 2021, but then mentioned possible headwinds such as the delta variant could derail that timeline.
This stood in sharp contrast to Fed Bank presidents who voiced their belief last week that the Fed should be moving faster to contain inflation that is already well above target.
The August employment report, scheduled for release Friday, will go a long way in determining whether tapering details will be provided at the Sept. 21-22 Federal Open Market Committee meeting.
A quick summary of foreign exchange action heading into Monday shows that EUR-USD edged out a 24-day high at 1.2610 as the dollar weakened further on Powell’s dovish speech that included no clear signals of when tapering could begin.
The outlook for the European Central Bank is to start tapering their asset purchases, possibly at their September meeting, but US growth is likely to outpace European growth and lift the dollar in the near term.
USD-CAD has settled in a narrow range just above its Friday low at 1.2603, though the bias remains to the downside after Powell’s remarks. The wild card for the pair is oil prices, as the impact of Hurricane Ida, which hit the Gulf of Mexico over the weekend, is assessed.
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GBP-USD stands just off the 12-day high seen Friday at 1.3781. Recent UK data have indicated the pace of economic growth has moderated, particularly slower retail sales, a decline in consumer sentiment and slower inflation growth.
If that trend continues, it will give the Bank of England more room before it needs to contemplate rate increases. Daily COVID cases remain high in the UK, but the high vaccination rates are preventing severe illness.
USD-JPY dipped to a five-day low at 109.80 as the dollar slipped, though the overall trend of yen weakness over the last week remains intact as risk-taking has become the theme.
U.S Dollar Trades Under Pressure over Taper Fever
