Dollar Resumed its March Towards a 3-½ Month High

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ForeThe U.S. dollar demonstrated its strength on Tuesday. The greenback resumed its march towards a 3-½ month high as a Federal Reserve meeting got underway with risk appetite broadly subdued, leaving the Australian dollar and yuan struggling due to widening regulatory crackdown in the People’s Republic of China.

The dollar index which tracks the greenback against a basket of currencies rose 0.2% to 92.80.

Net long dollar positions to their highest points in more than a year last week according to the data provided by CFTC. This marks an important reversal from the first quarter of the year. At that time, hedge funds ramped up bearish bets on expectations that record low-interest rates would falter the greenback.

The U.S. dollar has the potential to reach even better results if the central bank strikes a hawkish tone after the meeting. However, market consensus believes that is unlikely to happen. Last week, the National Bureau of Economic Research released its study. The study showed that the coronavirus-induced U.S. recession lasted only for two months. Strategists believe that the shortness of the recession could lead the Fed to change its monetary policy. But that seems unlikely to happens as the new monetary policy strategy framework allows for a less aggressive response.

Dollar and other important currencies on Tuesday

In London trading on Tuesday,  the single currency was changing hands at $1.1780. It was not far from an early April low of $1.1752 the euro reached last week.

Elsewhere, concern at the spread of highly contagious Delta variant affected risk-sensitive currencies. A sell-off in Hing Kong also affected risk-sensitive currencies.

The Australian dollar fell more than 0.5% while the offshore of the Chinese currency dropped past the 6.50 per dollar line.

The British pound fell 0.3% to $1.3773. The pound suffered losses as broader market concerns offset early data that seemed to show an ebb in surging coronavirus cases in Britain in spite of the removal of many restrictions.

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