The U.S. Dollar continues its advancement from the end of last week as markets take into account U.S. economic progress as well as the likelihood of a global slowdown until the Delta variant is under control.
Overview
Even previously low-infected regions are seeing a resurgence in infections and mandating safety measures seen during the peak of the virus in 2020. Indeed, the “Summer of Joy” has been handed a dose of concern as the effects of this renewed fear bring along new uncertainty on top of what was already a somewhat questionable recovery.
As long as these developments do not fade, expect this safe-haven role for the buck to remain. Of course, anything, particularly pessimism, can be temporary in today’s markets.
Additionally, commentary by Dallas Federal Reserve President Robert Kapan also has boosted dollar prospects for appreciation as his take is that the Fed tapering purchases do not have to come with an indication that interest rates, thus borrowing costs, will also go up. In fact, he says the Fed should take away some purchases and gradually do it so that it can keep from incrementing rates anytime soon. His thinking seems more hawkish than Powell’s, but it is making traders feel tapering is closer than we think.
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇓
The Euro has certainly taken steps back from where it was at the start o the month, falling by 1.0% since then as a result of worries that the global outlook may be a bit rosier than reality will allow.
While vaccinations have matched U.S. levels, the lull of August seems to be keeping things quiet on the other side of the Atlantic. Expect the shared currency to fall further if the buck is to assume a role-haven role further boosted by Fed talk of the potential reduction in bond purchases.
GBP ⇓
The British Pound has also fallen to the buck as its jobs report has suggested better-than-expected labor. We shall see what happens this week in regard to a U.K. budget as Prime Minister Boris Johnson looks to balance his back-and-forth disagreements with Chancellor of the Exchequer Rishi Sunak and the demands by his party to spend on the things they want.
Fiscal conservatism will be hard to exercise as Johnson has promised to revive the U.K. economy all across the land to reach forgotten regions that were struggling pre-COVID. Expect more dovishness after the Bank of England also saw no timeline for changing their easing policy.
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