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Dollar steadies; Fed minutes eyed

The dollar held its footing versus key peers on Monday. Disappointing Chinese monthly activity data helped the greenback recoup some losses after a startling drop in consumer sentiment on Friday undermined the U.S. currency.

The dollar was generally stable at 92.53 against a basket of other currencies after slipping to a one-week low of 92.468 on Friday. It gained the most against the Chinese yuan and the Australian dollar, against which it gained 0.1 percent and 0.5 percent, respectively. Retail sales, industrial production, and fixed asset investment fell short of July expectations as the latest COVID-19 epidemic impacted the world’s second-largest economy.

However, long positions in the greenback reached their highest level since March 2020, indicating that the decline was more of a blip than the start of a structural slump.

The risk of a more significant market reaction

The release of the Fed minutes this week will be critical to the greenback’s short-term outlook. Primarily it shows that more policymakers are leaning toward slowing its bond purchase program by the end of the year.

According to MUFG strategists, there is a definite tendency for the U.S. dollar to appreciate marginally after the release of Fed minutes. Still, a more significant market reaction is possible when the Fed’s policy is approaching a tipping point. Even by today’s standards, currency market volatility is coming to 2021 lows due to the summer slowdown. In other news, the minutes of the Reserve Bank of Australia’s most recent meeting are due on Tuesday.

Currency

The USD/JPY exchange rate fell 0.19 percent to 109.36. The GBP/USD exchange rate rose 0.02 percent to 1.3866.

The AUD/USD pair was down 0.22 percent to 0.7352, with the Reserve Bank of Australia set to disclose meeting minutes on Tuesday. The NZD/USD pair fell 0.02 percent to 0.7036 ahead of the Reserve Bank of New Zealand’s policy decision on Wednesday.

The USD/CNY exchange rate rose 0.01 percent to 6.4773. In July, China’s industrial production increased by a lower-than-expected 6.4 percent year on year, while retail sales increased by 8.5 percent yearly.

Investors studied the previous week’s U.S. economic data, revealing that consumer sentiment had slumped to its lowest level since 2011. Michigan consumer expectations were 65.2 in August, while Michigan consumer sentiment was 70.2.

Is the survey indicating an impending economic downturn in the United States? We doubt it because vaccine efficacy remains high, and the hit to sentiment likely means more people will get vaccinated. Instead, the Delta surge in the U.S. is more of a delay than a derailment in terms of the recovery, National Australia Bank (OTC: NABZY) analyst Tapas Strickland wrote in a note.

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