Dollar on back foot as Delta worries ease before Jackson Hole

By Kevin Buckland

TOKYO (Reuters) – The dollar hovered near a one-week low versus major peers on Thursday amid optimism the Delta coronavirus variant won’t derail a global economic recovery, with investors now eyeing the Fed’s Jackson Hole symposium on Friday for clues on the timing of a tapering of monetary stimulus.

The dollar index, which measures the currency against six rivals, edged up 0.05% to 92.867 after dropping to 92.801 overnight for the first time since Aug. 17.

The Australian dollar, which is sometimes viewed as a barometer of risk appetite, slipped 0.07% to $0.7269, not far from a one-week high of $0.72805 reached the previous day.

Investors have turned more positive on the outlook since the U.S. Food and Drug Administration fully approved the COVID-19 vaccine made by Pfizer (NYSE:PFE) and BioNTech on Monday, in a move that could accelerate U.S. inoculations.

Full approval of the Moderna (NASDAQ:MRNA) vaccine could follow within weeks, and on Tuesday, Dr. Anthony Fauci, the top U.S. infectious disease expert, said COVID-19 could be under control by early next year.

Overnight, data showed new orders for key U.S.-made capital goods were steady in July, while an acceleration in shipments suggested business investment in equipment could offset an anticipated slowdown in consumer spending and keep the economy on a solid growth path in the third quarter.

The S&P 500 and Nasdaq both closed at record highs on Wednesday, while U.S. yields ticked up, with the benchmark 10-year Treasury yield touching 1.352% for the first time since Aug. 13.

Against the euro, the dollar was little changed at $1.1765 on Thursday, after touching a one-week low of $1.1775 the previous day.

It rose 0.05% to 110.06 yen, another safe haven currency, meandering near the centre of its trading range since early July.

The focus at Jackson Hole, Wyoming will be Fed Chair Jerome Powell’s speech, which will be parsed for clues on the timing and pace of tapering of monetary stimulus.

Signals that Fed officials viewed a taper this year as most likely had helped buoy the dollar index to a 9-1/2-month high of 93.734 last Friday. That was before Dallas Fed President Robert Kaplan, among the U.S. central bank’s most forceful advocates for starting to reduce support for the economy, said he may need to adjust that view if the coronavirus slows economic growth materially.

Some analysts still see more upside in the dollar once the start of a stimulus taper moves closer to becoming reality, even if it’s delayed by uncertainties wrought by the pandemic.

“While this would be a USD negative factor on one hand, Delta worries may simultaneously increase the safe-haven appeal for the USD,” Jane Foley, a strategist at Rabobank, wrote in a research note.

“On balance, while pullbacks are likely to be par for the course, we see scope for EUR/USD to head towards $1.16 on a six-month view.”