Dollar Up, but Takes Pause on Upward Trend as Risk Aversion Ebbs

© Reuters.

By Gina Lee

Investing.com – The dollar was up on Wednesday morning in Asia but eased slightly from multi-month peaks. Recent risk aversion that gave the greenback a boost ebbed, and selling was light ahead of the European Central Bank (ECB)’s latest policy decision that kept the euro pinned down.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.07% to 93.047 by 12: 36 AM ET (4:36 AM GMT). The index, which is up 2.8% since mid-June, also seemed close to testing its peak of 93.439 touched in March 2021.

The USD/JPY pair inched up 0.05% to 109.89. Japanese trade data released earlier in the day said exports grew 48.6% year-on-year, a fourth consecutive month of double-digit gains, and imports grew 32.7% year-on-year in June.

The AUD/USD pair was down 0.26% to 0.7310, with Australia’s latest retail sales figures falling 1.8% month-on-month. The NZD/USD pair inched down 0.07% to 0.6912.

The USD/CNY pair edged down 0.15% to 6.4746 and the GBP/USD pair inched down 0.08% to 1.3615.

Despite the pause on the way upwards, some investors remained optimistic about the U.S. currency’s prospects.

"The U.S. dollar does seem to have quite an undertow of support," driven mostly by expectations that the U.S. economic recovery could prompt interest rates hikes but also receiving some help from investors’ risk aversion, Westpac analyst Sean Callow told Reuters.

"The general mood on the dollar looks as though it would take a lot to derail the basic narrative of the dollar being in fairly good shape from here to the Jackson Hole conference," the U.S. Federal Reserve’s symposium that takes place in Wyoming in August where the central bank could announce tapering of its bond purchases.

"For the time being you'd probably just prefer to keep long dollars for the next few weeks,” said Callow.

The recent, global surge in COVID-19 cases involving the Delta variant continued to drag on Asian currencies, the safe-have yen excepted, as some countries reimplemented restrictive measures.

Investors now await the European Central Bank’s policy decision, to be handed down on Thursday after President Christine Lagarde hinted at a guidance tweak during an interview in the previous week.

With the central bank announcing a new strategy that allows the bank to tolerate inflation above its 2% target and Lagarde saying policy guidance would be tweaked towards this new goal, investors widely expect a dovish tone in Thursday’s policy decision.

"No change in the ECB bias is unlikely to be enough to send the euro higher... at the same time, any ECB shift towards the dovish interpretation of the strategic review would underscore the recent downward euro/dollar trend," ING analysts said in a note.

Bank Indonesia will also hand down its policy decision on Thursday.