US Dollar Outlook: Are the Fed Growing Concerned Over Covid?

• 　　Are the Fed Growing Concerned Over Covid？

• 　　Jackson Hole Symposium is Key to US Dollar Outlook

ARE THE FED GROWING CONCERNED OVER COVID？

　　A slight reprieve for equity markets late Friday has continued into this week as Asian indices see broad-based gains. However, concerns over the global outlook remain amid the ongoing slowdown across China, while the rising spread of the Delta variant also adds to this fragile sentiment. The bounce back in equity markets had largely stemmed from comments made by Fed‘s Kaplan who noted that if the Delta variant would be persistent or start to affect demand, they would have to adjust policy views accordingly. This is noteworthy as not only is it the first Fed official to notably signal that the Fed’s outlook could be altered by the current path of Covid cases, but also Kaplan is among the most hawkish members at the bank and thus this sentiment may be shared by the more moderate members.

JACKSON HOLE SYMPOSIUM IS KEY TO US DOLLAR OUTLOOK

　　We have already seen how one Covid case and subsequent lockdown announcement prompted the RBNZ to refrain from raising interest rates last week, thus the Fed may sound slightly more cautious on the near term outlook at the upcoming Jackson Hole Symposium, which will now take place virtually. A reminder that, since the July FOMC, the 7-day average of new Covid cases has sharply increased from 69k to 167k, should additional Fed officials talk up the possibility of adjusting their outlook on monetary policy amid the uptick in Covid cases, this may underpin risk sentiment, weighing on the greenback, particularly against high-beta currencies.

US DOLLAR CHART: DAILY TIME FRAME