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The US dollar holds ground against most currencies and rises as Fed taper talk catches pace

The dollar moved up to a two-week high against dozens of currencies Monday, boosted by expectations the US Fed Reserve can potentially cut its asset purchases by the year-end regardless of the growing Covid-19 cases. 

The greenback came off its spikes in afternoon trading. The dollar index earlier went up 92.887, the highest since August 27. 

Starting with consumer prices on Tuesday, US economic data is due out this week. In addition, it will give the most recent updates on how hot inflation has been ahead of the Fed meeting next week.

Patrick Harker, Philadelphia Fed President, is now the latest official who wants tapering to start this year; he is keen to scale back asset purchases. 

Dollar boosted thanks to tapering talk, according to a macro strategist at Wells Fargo Securities, Erik Nelson.

Nelson said that they noticed the Fed communication and would like to de-link taper and rate hike. But as it will require convincing and time for the market to bring changes to its reaction function, a taper timeline is linked to a rate hike timeline for now.

Tapering means one step closer to tighter monetary policy, meaning a lift to the dollar. This also means the Fed will buy fewer debt assets, resulting in fewer dollars in circulation. 

According to the Wall Street Journal’s Friday report, Fed officials will seek an agreement in order to start paring bond purchases in November. 

US retail sales and production figures are also scheduled to be released this week.

Another high CPI reading for the week will pin the Fed to a wall as the economic data is already weak and pressure has been mounting for stimulus normalization, said Christopher Vecchio, senior analyst at DailyFX.com, forex broker IG. 

The euro was one of the currencies to lose to the dollar, sinking to $1.1770, lowest in over two weeks, after the European Central Bank’s announcement of trimming its own emergency bond purchases. The euro last dropped to 0.1% at $1.1801. 

The dollar was up 0.1% at 110 yen; it also gained 0.5% against the Swiss franc to 0.9228.

Talking of the cryptocurrency market, bitcoin was at $44,762, down 2.8%. 

Litecoin fell 2.6% to $180.78, followed by what Walmart Inc said about the press release of the retailer’s partnership with the cryptocurrency.

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