US Dollar Starts Monday on Bearish Note After August’s NFP Shocks Markets
Aiswarya Gopan • 2 min read
The US dollar is starting the fresh trading week on a bearish note, extending its weakness from the previous session and trading close to the lowest levels seen since a month after an extremely weak jobs report for August tempered expectations for the Fed to start tapering asset purchases anytime soon. At the time of writing, the US dollar index DXY is trading at around 92.20.
The non-farm payrolls data for August such released in the previous session showed that the US economy added only 235k new jobs through the last month, a number far lower than economists’ forecast which was for a reading of 728k. This disappointing days revealed the possible impact of the spread of the delta variant on US’s fragile labor market, something several Fed officials have warned about repeatedly despite other strong economic data releases indicating rapid recovery from the pandemic-driven crisis.
The weak data not only scared investors away from the greenback but also raised the likelihood of the Fed maintaining its dovish course for longer, providing support to the US economy and labor market as its recovery is far from complete. Although Fed Chairman Jerome Powell had stated in his latest speech at the Jackson Hole symposium that the central bank could start pulling back its monthly asset purchase program by the end of this year, the weaker than expected NFP report could delay this timeline.
Meanwhile, the US dollar is also facing pressure as the Euro makes gains lately over expectations that the ECB could consider tapering its stimulus measures soon. The European Central Bank meets later this week and any clues indicating a rising interest among policymakers towards reducing stimulus can take the common currency higher and further weaken the greenback this week.
Analysts expect the dollar to remain weak in the coming sessions as the US reports an uptick in fresh COVID-19 cases even as most of the other leading economies around the world seem to bring their caseload under control. According to latest news reports, the total number of active COVID-19 cases in the US is nearing 40 million, with around 150k cases being reported every day over the past week.