US Dollar Gets a Boost From Risk-off Mood in Markets
Aiswarya Gopan • 2 min read
Early on Thursday, the US dollar is trading steady, enjoying some support from a risk-off mood in markets over the spread of the delta variant and its possible economic impact even as traders await ECB’s policy decision later in the day. At the time of writing, the US dollar index DXY is trading around 92.58.
The US dollar has continued to strengthen against other leading currencies for the third consecutive session after its safe haven appeal received a boost from a bearish mood towards riskier equity markets. Traders are growing increasingly concerned about the rise in COVID-19 cases and deaths across the US, which could weaken the pace of progress the economy has made in recent months.
During the previous session, NY Fed President John Williams echoed Fed Chair Powell’s comments from the Jackson Hole symposium, stressing that the labor market needs to improve before the central bank can start pulling back on stimulus. This comes a few days after the non-farm payrolls report for the last month dealt a blow to the sentiment among investors who were hoping instead for the US central bank to announce a possible timeline by when it could begin tapering its asset purchases.
Meanwhile, all attention now turns to Europe where the ECB is widely expected to withdraw some stimulus initiatives put in place at the beginning of the pandemic. The Eurozone economy has made substantial progress from the pandemic-driven slump, driving up expectations that its central bank could bring down the PEPP from 80 billion euros per month to as low as 60 billion euros per month.
The decline in risk sentiment has caused commodity currencies AUD and CAD to dip lower. The weak moves in the CAD were also driven after the BOC held its monetary policy unchanged and decided to continue with its QE program at its latest meeting in the previous session.