USD Up as Fed may Begin Tapering, COVID-19 still Surging

USD Up as Fed may Begin Tapering, COVID-19 still Surging

On Friday, August 20, the USD rallied as the Federal Reserve signaled a possible asset tapering this year. Although the COVID-19 is still rising worldwide.

The USD Index, which trails the greenback in opposition to its six other rival currencies, climbed 0.01% to $93.597.

It rose for the first time since early November last year. Also, it is projected to increase 1.10% this week, which is the largest gain since June 2021.

An analyst stated that the USD Index might reach 94 this year ahead of the Federal Reserve’s most awaited asset tapering.

Meanwhile, the USD/JPY crashed 0.10% to 109.63, however, the pair remained at the center of its trading range for almost two months.

On the other hand, the EUR/USD pair traded 0.06% higher to 1.1686. Even so, it is still near the nine-month low of 1.1665 that it reached overnight.

Likewise, the USD/CAD jumped 0.71% to 1.2919, which is the pair’s new six-month high. It is with the sudden fall in the prices of oil that negatively affected the Canadian economy.

Consequently, the USD/CNY pair hopped 0.09% at 6.5001. It is just off its fresh three-week high of 6.510 over the 6.50 key level.

This is after China’s central bank maintained its annual loan prime rate at 3.85% and five-year loan prime rate at 4.65%.

While the GBP/USD pair slipped 0.12% to 1.3623, near its new one-month low. It followed a fall of 2.50% in the kingdom’s retail sales for July.

An economist stated that the data is hinting that the United Kingdom’s economic recovery is losing its momentum.

COVID-19 Weighing on USD

Furthermore, the rising COVID-19 infection in the United States poses concerns on the market which weighs on the USD.

In early July, the daily coronavirus infections were surging from 10,000 to 150,000 in August as the highly transmissible delta variant took over.

Last Wednesday, the US Federal Reserve released minutes from its latest meeting.

It showed that policymakers are deciding to slash the central bank’s monthly bond-buying program in the last quarter of 2021.

However, they are still debating on its implementation considering the pace of tapering, inflation data, unemployment rate, and the pandemic.

An economist said that Fed policymakers are analyzing this matter since these figures can give a larger risk to the US economic recovery.

He added that the central bank’s debt purchases decline gave a boost to the USD. 

Therefore, several analysts expect the US government to raise its bond yields which will attract investors to hold onto USD-denominated assets.

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