The weakness in the US dollar extends into early trading on Wednesday, causing it to slide to the lowest levels in almost three weeks against other leading currencies, with investors hesitant to enter new positions before the release of the jobs data on Friday. At the time of writing, the US dollar index DXY is trading around 92.59.
Earlier this month, the dollar index had surged to the highest levels seen in almost 10 months over rising optimism that the Fed could offer a timeline on when it would start tapering asset purchases. However, at the Jackson Hole symposium, Chairman Powell played down the hawkish expectations, insisting that it will be some time before he can consider hiking interest rates as the labor market had more ground to cover. Although Powell did state that the tapering process would begin this year, his failure to offer a timeline weakened the investor confidence in the greenback, causing it to slide lower.
Since then, the US dollar has been exhibiting more signs of bearishness as markets look to the upcoming non-farm payrolls report for the month of August in hopes for clues on when the Fed could begin winding down asset purchases. A strong NFP report could bolster optimism and drive some strength back into the reserve currency, although a weaker than forecast reading or numbers worse than July’s report can exert downward pressure on the currency.
Investors also turned away from the greenback after US consumer confidence fell to the lowest levels seen since six months amid the spread of the delta variant of COVID-19 across the nation. This raised fears that the latest spike in infections was beginning to hurt the US economy, which could further support the Fed’s extension of its dovish stance.
The upcoming non-farm payrolls report is expected to reveal an addition of 750k jobs to the US economy through the month of August while the unemployment rate could drop from 5.4% in July to 5.2%. The month of July had seen an addition of 943k jobs instead.