The US Dollar Declining After Recording The Largest Weekly Rise

The US dollar fell against its rivals on Monday in a bout of profit-taking after posting its largest weekly rise in more than two months last week, supported by concerns about the global growth outlook, and the main source of investor concerns is the global importance of the Coronavirus delta variable that is set to weigh heavily on survey data. European manufacturing is scheduled soon.

In line with the weak trend in Chinese and US PMIs, European PMI data is expected to show that the strong recovery seen during the June quarter is now at risk of fading due to a combination of higher prices, ongoing supply chain stress and labor shortages, and a tax on business activity.

And while a rally in the delta pivot is likely to boost the dollar’s safe-haven appeal, it could derail the Fed’s plans to scale back its pandemic-era stimulus by the end of the year, according to some analysts. The economic outlook at the central bank’s Jackson Hole August 26-28 conference will be carefully analyzed by eager traders for details on the timing and pace of monetary tightening.

To avoid the risk to keep the dollar supported, and while the Fed should cautiously limit the extent of the dollar’s gains, some adjustment will be needed in our year-end FX forecasts to show a smaller decline in the dollar’s value due to the spread of coronavirus risks.

The US dollar index, which measures its performance against major competitors, fell 0.1% at 93.638 but was within close proximity of an early November high of 93.734 hit on Friday. Dallas Robert Kaplan said Friday that he may reconsider the need for an early start to tapering if the virus harms the economy.

The Australian dollar led the gainers against the US currency after Prime Minister Scott Morrison said Australians should start learning to live with the coronavirus when higher vaccination targets are reached. $0.6807 was reached on Friday, coinciding with putting Australia under lockdown as it struggles to contain the delta outbreak.

The euro rose 0.1% to $1.1711, surpassing a 9-1/2-month low of $1.1664.