The dollar stabilized in early European trade Tuesday, following its sharpest one-day fall since May, with traders repositioning ahead of the Federal Reserve’s Jackson Hole meeting.
At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely marginally higher at 93.017, after dropping about 0.5% on Monday.
EUR/USD edged lower to 1.1740, after gaining around 0.4% Monday, USD/JPY was up 0.2% at 109.88, GBP/USD rose 0.1% to 1.3734, and the risk sensitive AUD/USD climbed 0.4% to 0.7235,
after rising over 1% during the previous session.
Helping risk sentiment was the news that the U.S. Food and Drug Administration granted full approval to the Covid-19 vaccine developed by Pfizer (NYSE:PFE) and BioNTech (DE:22UAy), potentially accelerating inoculations as companies mandate jabs in order to return to the office.
The dollar was also hard hit Monday as traders reconsidered their positions ahead of the Federal Reserve’s important Jackson Hole Symposium. Comments made on Friday by Dallas Fed President Robert Kaplan suggested that the latest wave of Covid-19 could lead the Fed to push back any plans to start reducing its bond purchases. Data on Monday that showed new infections at their highest level since January, while the seven-day average for daily deaths topped 1,000 for
the first time since April.
The annual Jackson Hole meeting begins on Thursday, held online this year due to the Covid-19 outbreak, and Fed Chair Jerome Powell’s keynote speech on Friday had been widely expected to detail the start of the central bank’s tapering of its massive bond-buying program.
“Ahead of that - and the potential clarity on the timing of Fed tapering - we doubt that investors will want to heavily add to positions in risky assets and doubt that the dollar needs to sell off too much,” said analysts at ING, in a note.
Elsewhere, USD/HUF rose 0.1% to 297.90 and EUR/HUF climbed 0.1% to 349.86 ahead of the latest rate-setting meeting of Hungary’s central bank. The policymakers are widely expected to raise interest rates by 30 basis points to 1.5%, the third such hike in as many months, as they try to stem inflation levels near a nine-year high. Poland's central bank meeting is expected to keep its key rates unchanged, by contrast.
USD/ILS fell 0.1% to 3.2215, after the Bank of Israel left its benchmark interest rate at 0.1% for an 11th straight policy meeting on Monday, citing higher inflation but uncertainty over rising Covid-19 infections.