US Dollar Steady After Friday's Steep Slide as Fed Dampens Hawkish Mood

US Dollar Steady After Friday’s Steep Slide as Fed Dampens Hawkish Mood

Posted Monday, August 30, 2021 by
Aiswarya Gopan • 1 min read

The US dollar started Monday on a bearish footing but has steadied for now, after having come under pressure in the previous session when Fed Chair Powell revealed a slower pace for rate hikes going forward, denting investors’ expectations for the central bank to turn hawkish anytime soon. At the time of writing, the US dollar index DXY is trading around 92.70.

On Friday, the US currency witnessed a sharp drop against other leading currencies following the Jackson Hole symposium where Powell shared these remarks. Although Powell did indicate that the Fed could consider beginning the tapering of asset purchases within this year, rate hikes would take longer as the labor market has “much ground to cover” before the central bank can confidently pull back of stimulus.

The US dollar has also come under pressure as commodity currencies linked to crude oil received a boost as a result of a storm affecting oilfields along the Gulf of Mexico. Meanwhile, other commodity currencies AUD and NZD are also trading strong at the start of the week, holding above the $0.73 and $0.70 marks respectively.

In addition, the greenback also faced downward moves after US Treasury yields declined. Falling bond yields are a sign of weakness in investor confidence in the economy which weigh on the nation’s currency – in this case, the US dollar, reducing its appeal against other currencies and instruments.

Later this week, the focus shifts from the Fed back to labor market with the release of the all-important NFP report for the month of August. After Powell reiterated how the employment levels had much catching up to do, investors will closely monitor the data to gauge if the latest spike in cases from the delta variant has affected the labor market in the US as it begins to recover.

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