CAPITALDIGEST, MARKET REVIEW. 29 AUGUST 2021.
MONDAY 23/8/2021 – DOLLAR SLIPS AFTER LAST WEEK’S CLIMB AS DATA EASES TAPERING FEARS
The US dollar fell on Monday after posting its biggest weekly rise in more than two months last week, as markets embraced a riskier mood with weak data, prompting the Federal Reserve to adjust its monetary Not likely to be removed quickly. Attitude A man puts up a US dollar banknote at the window of a local currency exchange in Aden, Yemen, June 29, 2021. Image taken on June 29, 2021. Businesshala/Fawaz Salman. Data firm IHS Markit said growth in US business activity slowed for the third straight month in August due to capacity constraints, supply constraints and the fast-spreading delta version of the coronavirus. “Today is about a little risk-on rebound. You have almost every risky asset rally,” said Edward Moya, senior market analyst at forex brokerage OANDA in New York. The dollar index rose to a nine-month high last week, climbing nearly 5% from May lows, as investors bet the Fed will begin to roll back pandemic-driven stimulus policies ahead of Europe and Japan. But Dallas Fed Chairman Robert Kaplan dashed those hopes on Friday when the well-known hawk said he might reconsider the need to get started sooner if the virus hurts the economy. The market has concluded that 2013 is not going to have a “taper tantrum,” Moya said. Fears of a tightening of monetary policy by the Fed led to an increase in interest rates at the time. “Despite the inevitable announcement of tapering at some point this year, it is going to be very slow and does not indicate any imminent rate hikes at the end of next year,” he said. Risk currencies including the Norwegian Crown and the Australian and Canadian dollars were among the major gainers of the weaker dollar. All three currencies rose over 1% against the US currency. The dollar index, which measures its performance against a basket of six currencies, fell 0.57% to 92.95. The euro was up 0.44% at $1.175, while the yen was trading down 0.11% at $109.680. Some investors, such as Stephen Jane, who runs hedge fund Eurozone SLJ Capital, remain long-term dollar bulls.
TUESDAY 24/8/2021 – DOLLAR SLIPS FURTHER AS OIL RALLIES, COMMODITY CURRENCIES GAIN
The dollar eased further on Tuesday as risk-related currencies benefited from rising commodity prices and markets set aside concerns about the spread of the Delta coronavirus variant to gauge data that showed a U.S. economy in strong recovery mode. Risk appetite in global markets strengthened after the U.S. Food and Drug Administration on Monday granted full approval to the COVID-19 vaccine developed by Pfizer (PFE.N) and BioNTech (22UAy.DE) in a move that could accelerate U.S. inoculations. A bounce in China’s technology sector also contributed to risk-on sentiment that helped boost the Canadian , Australian and New Zealand dollars. “The euro, Canada and Aussie currencies made new lows for the year last week, and so the dollar is consolidating and its upside momentum has stalled,” said Marc Chandler, a managing director at Bannockburn Global Forex. The dollar index , which measures the greenback against a basket of six currencies, fell 0.095% to 92.899. The euro was up 0.07% at $1.1751, while the yen traded down 0.01% at $109.6700. Rising COVID-19 infections caused by the highly contagious Delta variant have fueled concerns about the recovery from the pandemic. But markets have largely overlooked that this week, with analysts citing thin liquidity as a factor driving apparent swings in risk appetite. Market attention is focused on the Federal Reserve’s Jackson Hole conference on Friday, when some investors expect Fed Chair Jerome Powell to hint at a possible timeline for tapering the U.S. central bank’s bond-buying monetary stimulus.
WEDNESDAY 25/8/2021 – STERLING STEADY IN SLUGGISH MARKETS; INVESTORS WATCH COVID-19 DATA
Sterling was little changed on Wednesday, slipping slightly against the dollar but lacking direction overall as investors weighed up COVID-19 data and waited for the Federal Reserve’s annual symposium on Friday to give momentum to the dollar. Risk appetite was mixed, with riskier currencies such as the British pound supported by higher commodity prices at the start of the week, but any gains limited by concerns about the Delta variant. Market attention is focused on Friday’s Jackson Hole conference, at which some investors expect Chair Jerome Powell to give hints about tapering the Fed’s bond-buying scheme. Versus the euro, the pound was flat at 85.66 pence per euro . The pound has generally benefited from expectations that the Bank of England will tighten policy before the European Central Bank. “GBP remains very much range-bound, with few immediate drivers seen on the horizon. GBP may take some lessons from Hungary, however,” ING strategists wrote in a note to clients. Hungary’s central bank said on Tuesday it would start gradually withdrawing its bond-buying program. “Hungary’s test case suggests the FX market rewards a taper with a stronger currency,” ING said.
THURSDAY 26/8/2021 – DOLLAR ON BACK FOOT AS DELTA WORRIES EASE BEFORE JACKSON HOLE
The dollar hovered near a one-week low versus major peers on Thursday amid optimism the Delta coronavirus variant won’t derail a global economic recovery, with investors now eyeing the Fed’s Jackson Hole symposium on Friday for clues on the timing of a tapering of monetary stimulus. The dollar index , which measures the currency against six rivals, edged up 0.05% to 92.867 after dropping to 92.801 overnight for the first time since Aug. 17. The Australian dollar , which is sometimes viewed as a barometer of risk appetite, slipped 0.07% to $0.7269, not far from a one-week high of $0.72805 reached the previous day. Investors have turned more positive on the outlook since the U.S. Food and Drug Administration fully approved the COVID-19 vaccine made by Pfizer and BioNTech on Monday, in a move that could accelerate U.S. inoculations. Full approval of the Moderna vaccine could follow within weeks, and on Tuesday, Dr. Anthony Fauci, the top U.S. infectious disease expert, said COVID-19 could be under control by early next year. Overnight, data showed new orders for key U.S.-made capital goods were steady in July, while an acceleration in shipments suggested business investment in equipment could offset an anticipated slowdown in consumer spending and keep the economy on a solid growth path in the third quarter. The S&P 500 (.SPX) and Nasdaq (.NDX) both closed at record highs on Wednesday, while U.S. yields ticked up, with the benchmark 10-year Treasury yield touching 1.352% for the first time since Aug. 13.
FRIDAY 27/8/2021 – DOLLAR, EURO, STERLING AWAIT POWELL’S JACKSON HOLE SPEECH
The dollar, euro and sterling steadied on Friday as investors waited for a highly anticipated speech by Federal Reserve Chair Jerome Powell, with analysts now doubting the central bank’s boss will hint when he may start to trim asset purchases. The dollar index, which measures its performance against a basket of six major currencies, was little changed at 93.034 at 1105 GMT. The euro and sterling were also steady at $1.1759 and $1.3707, respectively. The market was focused this week on what signals the U.S. central bank could send at its annual Jackson Hole conference, which kicked off on Thursday in virtual format, with Powell’s speech on Friday its main event. The conference has been often used by Fed bosses in the past to provide guidance on future policy. Analysts doubt Powell will signal when the Fed may start to cut its asset purchases just yet. The prevailing market view is that the Fed will announce tapering in the fourth quarter, giving a clear signal at one meeting before the actual announcement. But any move away from “a more cautious approach” could boost the dollar, said Thu Lan Nguyen, currency analyst at Commerzbank. “I see the risks today in a stronger dollar, should Powell possibly make a more hawkish statement on tapering than generally expected after all,” she said. Regional Fed chiefs – Dallas’ Robert Kaplan, Kansas City’s Esther George and St. Louis’ James Bullard – downplayed on Thursday the impact of the Delta coronavirus variant in separate interviews. Bullard repeated his call for the Fed to start trimming its $120 billion monthly bond purchases. Benchmark 10-year Treasury note yields were last at 1.3425%, after reaching 1.375% following Bullard’s comments, the highest since Aug. 12. Overnight, the safe haven dollar got some support after a suicide bomb attack at Kabul airport. “There are worries events in Afghanistan could erode public approval of the Biden administration,” said Toshiya Nakamura, chief manager of forex at Mitsubishi UFJ Trust Bank. The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced that a lockdown against COVID-19 in Auckland is likely to remain in place for another two weeks.