Dollar Retreats from Highs

The encouraging study outcomes for a COVID-19 tablet increased risk appetite. The dollar dipped from last week’s highs on Monday. Nonetheless, investors remained cautious ahead of central bank meetings in Australia and New Zealand, as well as jobless statistics in the United States this week.

The Reserve Bank of Australia meets on Tuesday and should maintain its current stance. Across the Tasman, the Reserve Bank of New Zealand is expected to raise interest rates by 25 basis points on Wednesday. And, on Friday, U.S. labor data should indicate ongoing progress in the job market. It had 460,000 jobs added in September. This number is enough to put the Federal Reserve on track to begin tapering before the end of the year.

Currencies

The euro reclaimed $1.16 and was up 0.1 percent at $1.1606, falling to a 14-month low of $1.1563 last week. The yen has also rebounded from a 19-month low, climbing 0.1 percent to 110.92 per dollar in Asian trade.

The British pound, the Australian dollar, and the New Zealand dollar all rose in early trade, continuing late-week gains. I don’t know if it will follow through or not,” said Westpac analyst Imre Speizer.

I’d suggest there may be a further downside, which would support the U.S. dollar and cause the Aussie and Kiwi to fall a little bit further,” he said, with sentiment in the driver’s seat.

Sterling gained 0.25 percent to $1.3568. This is its third straight day in the green after a dramatic drop last week when markets ignored hawkish central bank rhetoric in favor of focusing on a bleak future and the possibility of both rising rates and inflation. The Australian dollar rose 0.1 percent to $0.7273, while the New Zealand dollar fell slightly to $0.6952. According to swap markets, rate hikes are expected in New Zealand on Wednesday. There is a 96 percent possibility of another in November.

Investors and Traders

“Investors are appraising the U.K. based on its entire set of fundamentals, and swings in sterling indicate that many are not liking what they are seeing,” said Rabobank strategist Jane Foley.

“The U.K. no longer has a vaccination advantage… And, while Prime Minister Johnson likes to think of Brexit as ‘done,’ many firms and observers are only now beginning to assess its implications.

Reuters surveyed economists predict Australia’s cash rate to remain unchanged until at least 2024, as the RBA has stated. Traders believe it will take a lot to derail the Fed from its tapering path. However, the steadying of Treasury yields down the curve indicates some danger to the timing.

“The concern is whether there is a number that changes the Fed’s stance on tapering its bond purchases in November, and what a truly weak or hot number means amid mounting stagflation fears,” said Chris Weston, Pepperstone’s head of research. If U.S. treasuries find new buyers this week ahead of Friday’s non-farm payrolls in the United States, the dollar may fall in value.