US Dollar’s Safe Haven Status Under Pressure – Can Fed Offer Hope?
The US dollar is trading weak after experiencing a steep decline during the previous session after the markets' risk sentiment was bolstered
The US dollar is trading weak after experiencing a steep decline during the previous session after the markets’ risk sentiment was bolstered by positive news about the pandemic’s latest wave. At the time of writing, the US dollar index DXY is trading at around 93.01.
On Monday, the US currency lost more than 1% of its value against leading risk-sensitive currencies, including the CAD and AUD on the back of encouraging developments related to the spread of COVID-19 cases. Global markets had been trading under pressure lately over worries that the latest spike in infections from the delta variant could derail economic recovery worldwide – a worry that supported the safe haven status of the US dollar and drove strength in it in the past few sessions.
However, PMI releases from key markets revealed negligible impact on business activity across the manufacturing and services sectors, reassuring markets and driving up the demand for riskier instruments, including stocks. This sent investors away from the safety of the greenback, causing it to register the sharpest single-day fall seen since May.
Although, losses in the reserve currency remain restricted owing to optimism that the Fed could confirm a timeline for starting the tapering of its asset purchase program during the upcoming Jackson Hole symposium. All eyes are on Chairman Jerome Powell’s speech for confirmation or even clues on when the US central bank could begin pulling back on monetary stimulus.
Analysts foresee a period of weakness in the US dollar in the short-term in case Fed officials do not offer a timeline for beginning the process. Although, the bearish mood will be temporary if they provide reassurance that they are confident about the US’s economy and labor market making significant progress towards recovery.
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