The dollar is holding on

09/10/2021 | 06:22am

The Dollar Index, which compares the greenback to the six major world currencies, is gaining some ground on the week. Last Friday, it had hit its lowest level since August 3 after the release of poor US jobs data, which reduced the likelihood of seeing a rapid reduction in the Fed's asset purchase program.

Since then, a number of officials have suggested that tapering is still likely this year, including central banker Michelle Bowman, who said overnight that weakness in the labor market in August wouldn't throw the central bank off course.Cleveland Fed President Loretta Mester is scheduled to speak on monetary policy later Friday at an event hosted by the Bank of Finland.

Data released yesterday showed that the number of Americans filing new claims for unemployment benefits fell last week to its lowest level in nearly 18 months, a sign that despite bumps in the road, job growth is being hampered by labor shortages rather than a cooling of business needs.

"The Fed appears poised to cut interest rates later this year, as evidenced by its recent comments this week," Mark McCormick, global head of FX strategy at TD Securities, wrote in a note.However, even though monetary policy is tending to become less accommodative globally, financial conditions remain extremely loose, which "limits the USD's room to manoeuvre and favours selling rallies," he added.

Cours de change au 10/09/2021
Major exchange rates as of 10/09/2021 (Source Zonebourse)

HSBC, however, is more positive on the dollar's outlook."The Fed's path towards policy normalisation should gradually support the dollar, especially as the gradual reduction in support begins in earnest," wrote the strategists led by HSBC. The Fed's path to policy normalisation should gradually support the dollar, especially as the gradual reduction in support begins in earnest," said strategists led by global head of currency research Paul Mackel in a report, forecasting a strengthening of the dollar to USD1.15 by the end of the year against the euro. The single currency received slight support overnight after the European Central Bank said it would reduce its emergency bond purchases in the next quarter, as widely expected."It was a big event for economists, not so much for traders," summed up Chris Weston, head of research at broker Pepperstone in Melbourne.

The dollar gained 0.1 percent to JPY109.845 on Friday, remaining in a virtually unchanged corridor against the Japanese currency for the past two months. The Australian dollar rose 0.24 percent to USD0.7385, but lost some ground on the week.


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