Dollar set for first winning week in three with eyes on Fed

FAN Editor
FILE PHOTO: Four thousand U.S. dollars are counted out by a banker at a bank in Westminster
FILE PHOTO: Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

September 10, 2021

By Kevin Buckland

TOKYO (Reuters) – The dollar headed for its first winning week in three on Friday after rebounding from a payrolls-induced sell-off, as investors continued to ponder the timing of a tapering of Federal Reserve stimulus.

The dollar index, which gauges the greenback against six major peers, slipped 0.07% to 92.469, but remained on course for a 0.4% weekly rise.

Last Friday, it sank to the lowest since Aug. 3 at 91.941 after data showed the U.S. economy created the fewest jobs for seven months, reducing the odds of an imminent reduction of the Fed’s asset-purchase programme.

Since then, a number of officials have come out to suggest a taper is still likely this year , including Fed Governor Michelle Bowman, who said overnight the weak August labour report won’t throw the central bank off course.

Cleveland Fed president Loretta Mester is scheduled to speak about monetary policy later on Friday at a Bank of Finland event.

Data on Thursday showed that the number of Americans filing new claims for jobless benefits fell last week to the lowest level in nearly 18 months, offering more evidence that job growth was being hindered by labor shortages rather than cooling demand for workers.

“The Fed looks set to taper later this year, underscored by recent comments this week,” Mark McCormick, global head of FX strategy at TD Securities, wrote in a research note.

However, even with the trend toward monetary policy becoming less accomodative globally, financial conditions remain ultra-loose, which “binds how much room the USD has to run and favors selling rallies,” McCormick said.

HSBC, though, is more positive on the dollar’s outlook.

“The Fed’s path towards policy normalisation should

support the USD gradually, especially when tapering actually starts,” strategists led by global head of FX research Paul Mackel wrote in a report, projecting the dollar to strengthen to $1.15 by year-end.

The euro ticked 0.07% higher to $1.18325 on Friday, on track for a 0.39% decline this week.

The single currency got some small measure of support overnight, after the European Central Bank said it would trim emergency bond purchases over the coming quarter, as widely expected.

In the past two quarters, the bank has bought around 80 billion euros worth of debt each month. It provided no numerical guidance for the three months ahead, but analysts had predicted before the meeting that purchases would fall to between 60 billion and 70 billion euros in those months.

“It was a big event for economists, not so much for traders,” Chris Weston, head of research at broker Pepperstone in Melbourne, wrote in a note to clients. “The volatility was not there.”

Euro support at $1.18 “needs to give way for shorts to get any real traction here,” he said.

The dollar added 0.1% to 109.845 yen, and was poised to gain 0.15% this week, although the pair was still meandering in the middle of its range of the past two months.

The Aussie dollar rose 0.24% to $0.7385, tempering its loss for the week to a 0.85% decline, after drawing support from a rise in risk appetite after the White House said President Joe Biden spoke by phone with Chinese leader Xi Jinping in their first talks in seven months.

(Reporting by Kevin Buckland; Editing by Ana Nicolaci da Costa and Jane Wardell)

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