Greenback holds above one-week low on Delta fears

London

THE safe-haven US dollar gained on Wednesday to trade above a one-week low versus major peers amid concerns that the highly contagious Delta coronavirus variant could derail a global economic recovery.

Risk appetite in global markets has improved since the US Food and Drug Administration granted full approval to the Covid-19 vaccine developed by Pfizer and BioNTech in a move that could accelerate US inoculations.

Anthony Fauci, the country's top infectious disease expert, said on Aug 24 that the United States could get Covid-19 under control by early next year.

Still, the dollar index, which tracks the currency against six rivals, edged up 0.1 per cent to 93.019 on Wednesday after dipping to 92.804 the previous day for the first time since Aug 17.

The greenback had rallied until the start of this week, with the dollar index hitting a 91/2 month high of 93.734 on Aug 20, on fears over Delta's economic impact and as the Federal Reserve signalled a tapering of stimulus was likely this year.

With the Delta variant clouding the outlook, expectations have diminished that Fed chair Jerome Powell will indicate a timeline for tapering when he speaks at the Fed's annual economic symposium at Jackson Hole, Wyoming, on Friday.

"We expect Fed chair Powell to strike a fine balance between touting the recent US economic recovery and the challenges lying ahead, including the challenge of unwarranted tightening of the US and global financial conditions that could derail the recovery," said Valentin Marinov, head of G10 FX research at Credit Agricole.

"That being said, I think that any dollar underperformance in the wake of Jackson Hole could represent a buying opportunity ahead of the key US data releases next week. Indeed, potential positive surprises from the NFP (non-farm payrolls) in particular could put QE (quantitative easing) taper back among the main FX market drivers and support the USD."

The dollar gained 0.2 per cent to 109.89 yen, another safe-haven currency.

Against the euro, the dollar was 0.15 per cent higher at US$1.1739, remaining close to the one-week low of US$1.17655 touched overnight.

Sterling traded 0.1 per cent lower at US$1.3716 after rising to as high as US$1.37475 on Aug 24, its strongest since Nov 19.

Australia's dollar dropped 0.08 per cent to US$0.7251 after touching a one-week high of US$0.7271 in the previous session. REUTERS