Trading Currencies: Delta Blues?

The emergence of the Delta Variant Brings New Uncertainty

We had started to turn neutral on the USD over the last few weeks. Our reasoning for this was that the unbroken run in the USD was showing signs of fatigue.

What is now adding to this fatigue is signs the Delta variant is impacting US data. The Delta variant has quickly risen to become the dominant strain in the country since late June. With events cancellations, delayed office returns, and dwindling consumer confidence, concerns remain over this highly contagious Delta variant and how it might derail the country’s economic recovery.

Upbeat Job Market Results Hint at an Economic Recovery

In early August, we saw US private sector payrolls (ADP) disappoint, rising 330,000 in July. The expectation was for 690,000 jobs to be created.

Now if we think about this 330,000, it’s still very impressive and data elsewhere is still strong. Just have a look at the ISM service read for July rising from 60.1 to 64.1 – this is a record high and was led by the “exports” and “prices paid” sectors of the survey.

Another positive sign for the market came last week as the US’s non-farm payrolls in July beat expectations. Official data showed that US employers added 943,000 jobs, and the unemployment rate dropped to 5.4%, a stark contrast to analysts’ estimation of 845,000 new job openings and a jobless rate of 5.7%. What’s more, the payroll increase is the highest since August 2020. Stay tuned to the latest market news.

The Fed’s Hawkish Remarks

But we keep hearing that “Delta is becoming an issue” and that forward indicators are showing signs of slowing.

Let’s look at the comments from Federal Reserve Vice-Chair Richard Clarida, who is a known neutral-hawk. In his remarks on Wednesday, he stated that:

  • “Policy normalisation in 2023 would be ‘entirely consistent’ with the new policy framework”
  • “That conditions for raising rates could be met by the end of 2022, with a tapering announcement possible later this year.”
  • The US will see a “healthy job gains in the third quarter”.
  • He sees inflation risk to the upside but clarified that he supports the official view that the current overshoot is transitory.
  • He is surprised by the fall in treasury yields and believes this reflects virus risks that are building.

That last line we think is poignant – it took some of the heat out of his comments and added to the volatility in the USD.

Currencies Against the US Dollar Stay Volatile

EUR/USD traded $1.1833 to $1.1902, a 3-week high. However, it has since slipped back. GBP/USD has also slipped back to $1.389 since writing but was as high as $1.395.

USD/JPY fell to a 2-month low of ¥108.72 before tracing the moves in the treasuries to move back up to ¥109.45.

AUD/USD moved back into $0.74 with a read of $0.7427. It did slide on the ISM data to $0.7370, but as we write it’s pushing $0.74 again being $0.7390. Receive the latest price updates on your favourite USD pairs.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.