FX Market Report 30/08/21

The Dollar hovered around multi-week lows on Monday after the Federal Reserve signalled a slower-than-forecast path to a rate rise. Traders subsequently turned their attention to U.S. employment figures for an indication on a stimulus tapering timeframe.

Furthermore, a storm impacting oilfields in the Gulf of Mexico provided support to crude prices and currencies exposed to oil, which helped Norway’s Krone hit a seven-week high. The Euro also reached its highest level since the beginning of the month during trading in Asia at $1.1810, whilst the Yen reached its strongest since last Wednesday at 109.70 per dollar.

The Dollar has declined since Federal Reserve Chair Jerome Powell announced last Friday that stimulus tapering could get underway in 2021, but that it wouldn’t directly mean higher rates as a rate rise would need the U.S. economy to pass a significantly more rigorous test.

“Powell was vague on the timing of tapering, and his reiteration that it is separate from a decision to raise rates was read to imply that there’d be a gap,” according to ANZ analysts. “That has, in turn, seen the market take a Goldilocks view of the Fed – stimulus will be reduced, but not so quickly as to snuff out the recovery.”

Following Powell’s comments, the Dollar index fell around 0.4% and barely changed on Monday to hit a fortnight-low of 92.595. Elsewhere the Australian Dollar moved lower to $0.7304 whilst the New Zealand Dollar edged down to $0.7005, Reuters reports.

The Dollar index has gained around 0.6% for the month, while the New Zealand Dollar and Norwegian Krone have fuelled G10 moves against the Dollar, rising a respective 0.5% and 1.4%, as both countries are set to start rate increases within a matter of weeks. Indeed, Norges Bank is planning a rate hike in September, and swaps markets are factoring in an 80% probability that the Reserve Bank of New Zealand will announce a rate rise in October.

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