Dollar pauses ahead of Powell speech

by Jonathan Adams
Dollar

The dollar index was at 93.030, rebounding from Thursday’s low of 92.807

The dollar paused on Friday as investors awaited a speech by Federal Reserve Chair Jerome Powell later in the day, following small gains the previous day after fresh calls for early tapering from a few hawkish Fed policymakers.

A dovish tone from the Fed’s chief could counter concerns about economic damage from the Delta variant of coronavirus.

The dollar index was at 93.030, rebounding from Thursday’s low of 92.807 as the euro traded at $1.1755, having eased from the previous day’s high of $1.1779.

Sterling edged down to $1.3695. Against the safe-haven yen, the dollar eased slightly to 109.98 yen.

Dallas Federal Reserve President Robert Kaplan suggested he expects the Fed to start raising interest rates next year, a comment that analysts took as more hawkish than last week when he appeared nervous about the potential impact of the Delta variant’s spread on the economic recovery.

Two other regional Fed chiefs – Kansas City Fed President Esther George and St. Louis Federal Reserve President James Bullard – also downplayed the impact of the Delta variant in separate interviews, with Bullard repeating his call for the Fed to start trimming its $120 billion in monthly bond purchases soon.

However, many investors think Powell will strike a more dovish tone in his speech at in the Kansas City Fed’s central banking conference.

While Chair Powell is likely to lay the groundwork for an eventual taper, we expect him to err on the side of caution and patience this week given that the macroeconomic landscape has deteriorated since the July policy gathering, said Candice Bangsund, portfolio manager at Fiera Capital in Montreal, Canada.

The rough consensus in the market is that Powell will likely announce tapering in the fourth quarter, giving a clear signal at one meeting before the actual announcement.

For Powell, there is no merit in specifying the exact timing for tapering at today’s speech. If he doesn’t drop a clear hint, that will be mildly positive for stocks, said Kyosuke Suzuki, president of financial algotech company at Ryobi Systems.

Risk-sensitive currencies are likely to gain while the yen is likely to weaken in that case, he added.

Elsewhere, the Australian dollar fetched $0.7243, little changed after data showing Australian retail sales plunged in July due to the spread of the Delta variant.

The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced the lockdown in Auckland is likely to remain in place for further two weeks. The kiwi was last down 0.1% at $0.6939.



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