US Dollar Index Dips Below 93 as Market Sentiment Improves
Aiswarya Gopan • 1 min read
The US dollar’s safe haven appeal has weakened further as fears about the economic impact of the spread of the delta variant recede, causing it to slide lower against other leading peers. At the time of writing, the US dollar index DXY is trading around 92.92.
Markets have been cheering the news of the US FDA granting full approval to Pfizer/BioNTech COVID-19 vaccine – a move investors believe could encourage more people to get vaccinated, reducing the spread of infections. This sentiment has raised the risk appetite in markets, sending investors away from the safety of the greenback and towards other instruments like equities and risk currencies.
The mood in the US markets was lifted further after leading infectious disease expert Dr. Anthony Fauce estimated that the nation could get the pandemic under control by early 2022. The positive mood dented the US dollar’s recent rally, which started after the Fed sounded optimistic about advancing its timeline for reversing its dovish outlook.
However, losses in the US currency remain limited as traders cautiously wait for the Jackson Hole symposium scheduled at the end of the week. There is still some hope that the Fed could announce a schedule for when it would begin tapering its asset purchase program, making it one of the first major central banks to dial down on stimulus measures. This could support the US dollar and drive back some strength in the currency.
However, given the spread of the delta variant across the US and several other parts of the world, concerns are rising that Fed Chair Powell could maintain his dovish stance on Friday as well. If this happens, the reserve currency could see more weak moves against its peers.