Dollar strengthens ahead of US labor market report

 

The spread of the delta variant of the coronavirus pushed traders towards the dollar on Tuesday. Markets are awaiting data on the US labor market, which is due out on Friday. The dollar strengthened on Tuesday to a 6-day high in USDX amid a declining risk appetite due to the spread of the new COVID-19 strain.

The Asia-Pacific region is again introducing quarantine measures, and the UK recorded the highest number of new cases of covid infections on Monday since January 30. The pandemic is worsening in many regions, casting doubt on the effectiveness of existing vaccines against new strains of coronavirus. As a result, investors fear a repetition in one form or another of the situation in the spring of 2020.

Summer in Europe promises to be darker than it seemed just a few weeks ago, when the acceleration of vaccinations promised a quick economic recovery, according to ActivTrades. Fed officials see the current rise in inflation as temporary, but sooner or later they will face stronger and longer-term price pressures. This means that the Fed's inclination towards tough policy, which was shown at the meeting on June 16, will continue to manifest itself in the third quarter, according to Nordea.

The ECB mainly faces temporary inflationary influences and therefore can afford to print money longer than the Fed, which will lead to a decline in the euro against the dollar, the bank believes.

The US dollar is likely to trade firmly ahead of Friday's nonfarm payrolls data for June, TD Securities said. Further curtailment of short positions on the dollar is possible before switching to summer trading mode in the next few weeks.

Market participants will look at the report on the number of jobs outside of agriculture in the United States as an indicator of the situation on the labor market, as the Fed announced the likelihood of an earlier than expected rate hike following the June 16 meeting. According to Reuters, the US Department of Labor is expected to report the creation of 690 thousand jobs in June, up from 559 thousand in May, and the unemployment rate will be 5.7% versus 5.8% in the previous month.

 

 

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