On a safe currency port in the form of the US dollar, a small rift formed during Wednesday’s trading. The higher risk of a slowdown in the economic recovery because of the delta variant is to blame.
The US dollar fell 0.2 percent against major currencies during Wednesday. In doing so, on Tuesday, the dollar rate rose against a basket of currencies to its strongest level in three months. Growing concerns about the spread of the delta variant of the Sars-Cov-2 virus are to blame. The dollar’s loss could be even deeper if it were not weakened at the same time by the Japanese yen, which has also been battling for investor favour in recent days.
Alongside the onset of the delta variant, markets are also worried about US inflation, which is coasting at exceptionally high levels. But no signals yet indicate that it could drop to acceptable levels of around two per cent a year anytime soon.
But investors still remain positively attuned as to the long-term outlook for the US dollar. That’s positive news even given the ambiguities of whether the Federal Reserve will hit against high inflation. If investors believe the dollar in the long run, then its current weakening can only be seen as a spike that will not contribute to the acceleration of inflation and thus the Fed will have no reason to tighten now monetary policy.