The U.S. currency headed for its first winning week in the last three on Friday. The dollar recovered from a payroll-induced sell-off as traders continued to contemplate the timing of a tapering of Federal Reserve stimulus. On Friday, the dollar index tumbled down by 0.07% to 92.469 against the six major currencies. However, it managed to remain on course for a 0.4% weekly gain.
The greenback plunged to the lowest level since August 3 at 91.941 last Friday. Data showed that the American economy created the fewest jobs for seven months. That significantly reduced the odds of an imminent reduction of the agency’s asset-purchase program.
Despite that, several Fed officials have spoken about tapering as if it’s still likely this year. For instance, Fed Governor Michelle Bowman recently stated that the weak-than-expected August labor report wouldn’t change the central bank’s course. Investors are waiting for the Cleveland Fed President Loretta Mester to discuss its monetary policy at a Bank of Finland event. This meeting is scheduled for later on Friday.
According to the latest data released on Thursday, the number of U.S. citizens filing new claims for jobless benefits tumbled down to the lowest level in almost 18 months. That is more evidence that labor shortages hindered job growth instead of cooling demand for workers.
The global head of FX strategy at TD Securities, Mark McCormick, noted that the Fed looks set to taper later this year. It seems there’s a new trend toward monetary policy becoming less accommodative worldwide. Despite that, financial conditions remain ultra-loose, which pushes the USD into a narrow trading range.
Unlike McCormick, HSBC is more positive on the greenback’s outlook. The global head of FX research, Paul Mackel, commented that the agency’s path towards policy normalization should support the dollar gradually.
How Did the Euro Trade?
The common currency surged forward by 0.07% to $1.18325 on Friday. However, the euro is still on track for a 0.39% decline this week. The currency received some measure of support overnight, thanks to the European Central Bank’s statement. The ECB announced that it would trim emergency bond purchases over the coming quarter.
Chris Weston, the head of research at broker Pepperstone in Melbourne, noted that it was a big event for economists, but not so much for traders because the volatility was not there.
On Friday, the dollar gained 0.1% to 109.845 Japanese yen. The USD/JPY pair was poised to add 0.15% this week. However, it was still trading in the middle of its range for the past two months.
After drawing support from an increasing risk appetite, the Aussie dollar soared by 0.24% to $0.7385.
How Did Emerging Market Currencies Fare on Friday?
Emerging Asian currencies rallied on Friday, led by the Indonesian rupiah and Taiwan dollar. Traders thought a phone call between U.S. President Joe Biden and China’s premier Xi Jinping might become a potential precursor to easing strained relations.
Meanwhile, equities in the broader region gained, as well, recovering some losses incurred this week. Taiwan and Singapore soared by 0.6% and 0.7%, respectively.
According to the senior U.S. official, Biden spoke by phone with Xi Jinping for about 90 minutes. Both leaders discussed the need to avoid letting competition between the world’s two largest economies turn into conflict.
Relations between the U.S. and China have been at their lowest point in decades in the wake of ex-president Donald Trump’s administration. This was only the second call between the leaders since joe Biden took office in January.
The head of Asia research at ANZ Banking Group, Khoon Goh, noted that earlier engagements between lower-level officials hadn’t gone well. As a result, markets weren’t expecting Biden and Xi to speak until the G-20 summit later in the year. However, investors are taking this as a hopeful sign that recent tensions will be toning down.
How Did the Rupiah and Taiwanese Dollar Fare?
Today, the Taiwanese dollar, the rupiah, and the Singaporean dollar rose between 0.2% and 0.3%. Meanwhile, other regional currencies gained modestly.
On Friday, stocks in Malaysia tumbled down after the country’s central bank declared on Thursday that it would hold its benchmark interest rate at a record low. The bank expects progress in the COVID-19 vaccination rate and the gradual easing of anti-coronavirus curbs to underpin growth.
Besides, Top Glove, the world’s largest medical glove maker, skyrocketed after announcing that it had received permission to resume sales to the United States. Customs authorities decided to lift a ban issued for alleged forced lab labor.
Stocks in South Korea, Indonesia, and Thailand were all set to post weekly losses, despite a short rally at the end of the week. On the other hand, stocks in China have soared by almost 3.5% this week. They were on course for their best weekly rise since mid-February.