US Dollar Stays in High Demand Ahead, Taper Talks and Infrastructure Vote

The US dollar index advanced 0.20 percent to 92.97, with a resistance test at 93.20 looking likely. Further advances to 93.50 and ultimately 94.30 will be possible as a result of this. Only a break of 92.60 shifts the narrative.

The market is in a bearish mood heading into the next session, with the US dollar holding steady at three-week highs, aided by hawkish Fedspeak and anticipation of an earlier Fed tapering following the US NFP blowout. As Delta covid fears grow, so does sentiment around the safe-haven currency, putting downward pressure on US yields.

The greenback is also holding its ground ahead of President Joe Biden’s $1 trillion infrastructure bill, which is set to be voted on by the US Senate at 1500 GMT on Tuesday. “We have agreed” on final approval of the infrastructure bill, said US Senate Majority Leader Chuck Schumer.

The first response from Fed policymakers to last week’s splendid employment report left investors in no doubt that the US central bank was approaching its benchmark for “significant further progress” in achieving its objectives. Atlanta Fed Presidents Rafael Bostic and Boston Fed Presidents Eric Rosengren hinted that the Fed may announce that it will begin tapering monthly asset purchases by $120 billion in September.

Richmond Fed President Tom Barkin appeared to have believed that inflation was now steadily back at 2%, but was unsure of how much progress had been made towards the Fed’s employment target.

US Dollar Is on a Run As Yields Rise

Following the latest Fed statements, Treasury rates jumped further on Monday, extending the rally from last week’s lows. The 10-year yield has risen beyond 1.30 percent, rebounding dramatically from a six-month low of 1.1270 percent and strengthening the US currency substantially.

Before the recent selloff took hold, the dollar index was flirting with the 93 levels for the first time since July 23. The euro appears to have taken the brunt of the dollar’s recovery, falling to a new four-month low of $1.1724 today. The ECB’s dovish position, which was just reiterated, is weighing severely on the euro, not just versus the dollar but against all major currencies.

While the dollar’s surge has continued technically, the currency’s strength against commodity currencies and Sterling has yet to be shown. To demonstrate the Dollar’s underlying strength, the AUD/USD would have to break through the 0.7288 low. In addition, USD/CAD must break over minor resistance at 1.2605, while GBP/USD must break through minor support at 1.3766. Aside from that, the Dollar’s rally is still a little half-hearted.