Dollar hits three-week peak on recent data, Fed taper view

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Dollar hits three-week peak on recent data, Fed taper view

On Friday, the US Dollar Index (DXY) measured against a basket of six major currencies on an average, had touched a three-week peak, mostly driven by stronger-than-anticipated US retail sales data in August that had bolstered views that the US Fed might begin to reduce its monthly asset purchase program before end-2021, rekindling the greenback’s safe-haven appeal while dampening equity indices across the globe.

On top of that, in the day’s FX market wind-down, the greenback had scored its largest weekly percentage gain since mid-August, as market participants seemed to be cashing on a hawkish Fed view on next week’s US Fed policy meet, while likely dovish policy stances from the BoE (Bank of England) and BoJ (Bank of Japan) at their policy meets scheduled to take place next week had weighed on investors’ morale.

Besides, a survey report from University of Michigan showing that its index for US Consumer Sentiment had edged higher last month, added to further bullish bias for the American currency. Nevertheless, this week’s maverick rally in US Dollar was almost entirely prodded by a flabbergasting rebound in US retail sales that soared 0.7 per cent last month compared to an analysts’ estimate of a decline of 0.8 per cent, pointing out an underlying resilience in US economy amid a pandemic-hit labour market alongside sky-scrapping inflation indicators.

US Dollar posts largest weekly gain since mid-August

Citing statistics, in the day’s FX market closure, the US Dollar Index (DXY) gained 0.4 per cent to 93.2, the highest since the third week of August, while on the week, the American Dollar Index added 0.6 per cent, the greenback’s largest weekly percentage gain since mid-August.

The bloc’s common-currency euro shared among 19-member states, in tandem, lost 0.3 per cent to $1.172 against its American counterpart, while the British Pound dropped 0.4 per cent to $1.3738 following a downbeat retail sales data.

Aside from that, safe-haven Japanese Yen had shrugged off 0.2 per cent to 109.92 yen per Dollar, while Swiss Franc lost 0.5 per cent to $0.9320 against its American peer after hitting a five-month trough of $0.9324 earlier in the session.

Meanwhile, shedding lights on new economic data released this week what would more likely to support a majority of Fed policymakers’ view on an earlier-than-expected tapering of fiscal support, a market economist at Capital Economist, Jonathan Peterson wrote in a client note, “While we doubt that the FOMC will set out a plan for tapering its asset purchases, the new economic projections may shed some light on its reaction function given building cyclical inflationary pressures.

Our view remains that inflation in the U.S. will stay elevated for longer than the FOMC and investors currently anticipate, in turn supporting higher U.S. yields and a stronger dollar.