Dollar reaches a two-week high as Fed tapering predictions increase
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Despite a jump in COVID-19 cases, the dollar strengthened to a two-week high against a basket of other currencies on Monday, as market expectations grow that the Federal Reserve will remove its support sooner rather than later. In early European trading hours, the dollar index climbed 0.3 percent to 92.880, its highest level since August 27. It was up 0.2 percent at the time of writing.
This week brings a burst of economic data from the United States, beginning with consumer pricing data on Tuesday, which will characterize the economy’s development ahead of the Federal Reserve’s meeting next week. Patrick Harker, the president of the Philadelphia Federal Reserve, is the latest official to declare he wants the central bank to start tapering this year.
“The U.S. dollar’s recent rebound has coincided with more hawkish comments from Fed Presidents,” FX analysts at MUFG said in a note.
A report in Friday’s Wall Street Journal said Fed officials will seek consensus on a plan to begin reducing bond purchases as early as November.
Additionally, retail sales and production figures are scheduled to be released in the United States later this week, which could assist establish the tone before the conference. It fell 0.3 percent to $1.17750, its lowest level in over two weeks, after last week’s announcement by the European Central Bank that it will begin to reduce its own emergency bond purchases. Japan’s currency lost roughly 0.2 percent and closed at 110.090 yen. “A couple of dynamics favour the dollar,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:NABZY) in Sydney.
“Re-opening still faces challenges from the consumer, who is cautious and from bottlenecks which restrict ability for the economy to rebound with some gusto.
“At the same time rising infections suggest we may still need to reintroduce restrictions of some sort. The other thing is that the Fed continues to signal that tapering is coming.”