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Dollar Near Multi-Month Highs; ECB Policy Meeting in Focus

ForexJul 21, 2021 15:48
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By Peter Nurse - The dollar traded higher Wednesday, remaining near multi-month highs amid worries over surging Covid-19 infections ahead of the start to the latest European Central Bank policy meeting. 

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 93.123, not far below March’s peak of 93.439. 

EUR/USD fell 0.2% to 1.1760, around the lowest level since early April, USD/JPY rose 0.1% to 109.89, while the risk-sensitive AUD/USD fell 0.4% to 0.7299, hit by Australian July retail sales falling 1.8% on the month as the large parts of the country was locked down.

Deaths from Covid-19 in the United States have averaged 239 per day over the past week, nearly 48% higher than the previous week, said Rochelle Walensky, director at the U.S. Centers for Disease Control and Prevention on Tuesday.

The vast majority of these cases are now down to the more contagious Delta variant. This was first found in India earlier this year and has since become the dominant version of the virus in the United States and many other countries.

“Global financial markets are re-pricing to a lower growth trajectory as Covid-19 case numbers rise again and fears of new lockdowns emerge,” said analysts at ING, in a note. “We suspect that this correction will once again present a buying opportunity for pro-cyclical currencies, but for the short term defensive positions should be maintained.”

Elsewhere, traders will be keeping a wary eye on the European Central Bank as it starts a two-day meeting on Wednesday, after changing its inflation goal to 2% earlier this month. President Christine Lagarde hinted at a change to the bank's guidance last week. 

“With the ECB shifting the inflation target from ‘below, but close to 2%’ to ‘2%’ with a commitment to symmetry, the new strategy can be interpreted as either a formalization of what it has been doing over the last few years anyway or a step towards more dovishness, as 2% implies a more resolute effort,” added ING.

Elsewhere, GBP/USD fell 0.2% to 1.3594, falling to levels last seen in February,. In addition to the surge in Covid-19 cases there caused by the lifting of restrictions, markets have also turned nervous about U.K. plans to break the agreement it signed with the EU over the customs treatment of Northern Ireland. The U.K. government is expected to confirm its intentions later Wednesday. On a more positive note for sterling, the country’s public sector net borrowing fell to 22.8 billion pounds ($30.95 billion) in June, 5.5 billion pounds less than a year earlier.


Dollar Near Multi-Month Highs; ECB Policy Meeting in Focus

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