Dollar Down but Remains Near Multi-Month Highs, Fed Policy Decision Remains Focus

© Reuters.

By Gina Lee

AiVIF.com – The dollar was down on Monday morning in Asia but remained near its strongest level since early April 2021 against the euro. Investors also await the U.S. Federal Reserve’s latest policy decision, due to be handed down on Wednesday.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.07% to 92.862 by 12:13 AM ET (4:13 AM GMT). The index was slightly below the previous week’s three-and-a-half month high of 93.194 but was up about 3.8% from its recent low on May 25. Progress in the U.S. economic recovery from COVID-19 also increased the likelihood that the Fed would begin asset tapering as early as 2021.

The USD/JPY pair edged down 0.18% to 110.34, near Friday's record of 110.58 which was the highest since Jul. 14. Japanese markets reopened after a holiday and the country released its services purchasing managers’ index earlier in the day.

The AUD/USD pair edged down 0.20% to 0.7349, with the Australian dollar dropping to an almost eight-month low of $0.72895 during the previous week as Sydney and Melbourne remain under COVID-19 lockdown.

The NZD/USD pair inched down 0.01% to 0.6970. Trade data released earlier in the day said that New Zealand’s trade balance fell to NZD250 million year-on-year but rose to NZD261 million month-on-month in June.

The USD/CNY pair inched up 0.03% to 6.4827 and the GBP/USD pair inched up 0.02% to 1.3748.

The dollar last traded at $1.17655 per euro, which was little changed from Friday but near the previous week’s high of $1.1752, not seen since Apr. 5.

The greenback would continue to strengthen throughout the week as the Fed is widely expected to move closer to the start of asset tapering, said the Commonwealth Bank of Australia (OTC:CMWAY) (CBA).

“We expect the FOMC to drop ‘substantial’ from ‘substantial further progress’” in its guidance on the necessary conditions for the labor market before removing monetary support, CBA strategist Joseph Capurso said in a note.

“Removing ‘substantial’ will signal the Fed believes it will soon be appropriate to taper asset purchases,” setting up a possible announcement of a taper in September, the note added.

However, the risk to this outlook is the surge in COVID-19 cases in the U.S., which came after the Fed’s last meeting on Jun. 16 which did not mention COVID-19 among the threats to the economy.

The dollar posted a 0.2% gain during the previous week, with fears that the surge in COVID-19 cases globally would delay the economic recovery reducing investors’ risk appetite. However, that appetite was regained as strong U.S. earnings gave global stocks a boost.

In cryptocurrencies, bitcoin continued its gains to climb above the $36,000 mark on Monday for the first time since June 2021, and last traded 1.6% higher at $35,959.48. Meanwhile, ether was last up 2.6% at $2,250.58.