Dollar ready for second week of gains as attention turns to Fed
LONDON (Reuters) – The dollar was expected to end the week with small gains after a few choppy days where currencies were rocked by a shifting risk appetite, with the market now focusing on the US Federal Reserve meeting next week.
The dollar index was up 0.2% for the week, edging up Friday to stand at 92.891.
But it was a 3.5-month high of 93.194, reached on Wednesday, after strong Wall Street earnings helped investors regain some of the confidence lost due to earlier fears that the Delta variant of the coronavirus will derail the global economic recovery.
“The heavily weighted dollar index in Europe remains fairly close to its recent highs at 93.00, which is a good performance given the downward revaluation of growth prospects in the US and globally that has taken place. over the past month, “said Chris Turner, ING strategists, Petr Krpata and Francesco Pesole said in a morning note.
“Dollar bulls will feel comfortable that the dollar is outperforming both during a global recovery – where the Fed appears poised to begin normalizing its policy – and during times of risk aversion when commodity and emerging market currencies (emerging markets) are affected. “
Chart: Dollar set for second week of earnings –
The safe haven yen weakened about 0.2% for the week and last traded at 110.36.
Meanwhile, the euro traded during the period at $ 1.1772, immune to mixed French and German surveys of purchasing managers. Surveys for the entire euro area are expected at 08:00 GMT.
The European Central Bank pledged Thursday to keep interest rates at record highs for even longer, as widely expected.
ECB President Christine Lagarde, in her press briefing, said a new wave of the coronavirus pandemic could pose a risk to the region’s recovery, although it offered a more balanced economic outlook.
While most analysts see the ECB’s accommodative pivot as weighing on the single currency, those at TD Securities say it could climb to $ 1.1851 in the near term.
“The lack of clues on future policy measures is a moderate disappointment for those looking for a stronger accommodating signal,” they wrote in a research note.
The next major market target is the Federal Reserve’s two-day policy meeting that ends on Thursday. Since the previous meeting on June 16, when Fed officials dropped a reference to the coronavirus as a burden on the economy, cases have increased.
Many economists, however, still expect the meeting to push forward talks for less stimulus.
The British pound recovered from losses as large as 1.3% for the week to trade roughly flat at $ 1.3741, supported by the resumption of risk sentiment, even with cases of COVID-19 largely on the rise.
However, the Australian dollar – often seen as an indicator of risk appetite – slipped 0.3% to $ 0.7360 on Friday and was heading for a 0.5% decline on the week, which would be a fourth consecutive weekly loss.
With half of Australia’s population languishing under lockdown, economists are speculating that the country’s central bank may increase stimulus rather than cut it at its next policy meeting.
“The balance of risks points to greater short-term AUD weakness,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.
Reporting by Ritvik Carvalho; additional reporting by Kevin Buckland in Tokyo; edited by Philippa Fletcher