Last week, the market was dominated by fears regarding the spread of the delta variant of the coronavirus. This was accompanied by the dollar's strengthening trend based on the positive impact of monetary policy and, more specifically, the conviction that the Federal Reserve's decision to reduce the scale of its support for the economy is imminent.
However, we still believe that the US dollar, which in August was outperforming other currencies, in the broader picture will struggle to hold its ground. Already, flaws are beginning to appear in its image.
Kaplan spoiled the US dollar party
On Friday, one of the Federal Reserve's tighter monetary policy supporters slowed down a rallying dollar by raising doubts about whether a rapid announcement of tapering quantitative easing is justified in the face of new epidemic threats. Although Robert Kaplan does not vote this year, his opinion was enough to plant a seed of uncertainty in investors' minds as to whether the optimistic outlook for the dollar is fully justified
All eyes on Jackson Hole
We expect the US currency to lose momentum ahead of the Jackson Hole symposium of central bankers from 26 to 28 August. Most market participants may hold their breath ahead of this important event, which is likely to result in restraint in betting on new trading themes. In the past, important statements have been made at August conferences at the Rocky Mountain resort, but this time we do not expect fireworks and positive news for the dollar. Given the recent statements, policymakers would like to make a decision based on at least one additional labour market report - the next one is scheduled for September 3rd. If the report confirms the good condition of the economy (in June and July, employment change exceeded 900 thousand jobs), a meeting with a quarterly revision of forecasts will be a natural occasion.
Risk appetite rebounds
On the one hand, a spoke has been put in the wheel of the dollar; on the other, the appetite for risk is also slowly reviving. More and more people are saying that the rise in the number of illnesses has slowed down in many countries. Monday's readings of eurozone's leading economic barometers, the PMI indexes, do not indicate that panic is starting to break out again in the services sector. The reading helps to push the EUR/USD pair above 1.17 for longer. The yen and the Swiss franc have also led the way alongside the dollar recently, but we expect the Swiss currency to stop attracting capital like other safe havens.