Dollar Strengthens on Fed’s Asset Price Tapering Plan
The United States dollar strengthens further Tuesday as markets continue to focus on the strong employment report from last week and comments from Federal Reserve officials on Monday, that asset price tapering could begin sooner than expected.
The start of tapering is still some ways off, with most calling for it in the fourth quarter at the earliest after a few more months of data, but the likelihood that Fed Chairman Jerome Powell will lay out a preliminary roadmap at his annual Jackson Hole speech at the end of the month has gone up substantially since the policy-setting Federal Open Market Committee’s meeting two weeks ago.
A quick summary of foreign exchange action heading into Tuesday shows that EUR-USD hit a new four-month low of 1.1726 in early trading, as markets are still focused on the suddenly hawkish tilt in Fed speeches after Friday’s employment report.
The recent US data and expectations of solid inflation report this week put the recovery in the US well ahead of Europe and is a strong positive for the dollar and a negative for EUR-USD.
At the same time, while the Fed is shifting toward a tighter policy, the European Central Bank appears committed to its dovish stance for the foreseeable future.
USD-CAD hit a 13-day high of 1.2589, boosted by the strong US dollar that was partially offset by an oil-aided uptick in the Canadian dollar.
Despite the increase in oil prices over the last day, concerns about the spread of the delta variant are likely to keep a cap on prices due to anticipated lower demand.
Most analysts believe that while some increased restrictions may be necessary to fight the spread of the virus, it seems unlikely the world economies will need to be shut down to the level they were at the start of the pandemic.
GBP-USD fell to a two-week low of 1.3826 before rebounding slightly.
The same dollar-positive events are keeping the pairing under pressure, but a hawkish shift from the Bank of England last week and a belief the delta variant is under control in the UK without the need for another widespread lockdown will continue to support the pound.
USD-JPY hit its highest point in more than two weeks at 110.48 due to the lift in the dollar and is likely to continue higher as the Fed. moves closer to tightening policy, in contrast to Japan’s low-rate environment.
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Dollar Strengthens on Fed’s Asset Price Tapering Plan
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