NEW YORK/LONDON : The dollar was little changed on Wednesday as oil prices slowed after a big two-day advance, U.S. Treasury yields moved higher and investors awaited clues on the tapering of economic support by the Federal Reserve at this week's Jackson Hole symposium.
Risk appetite in global markets improved after the U.S. Food and Drug Administration earlier this week fully approved the COVID-19 vaccine made by Pfizer and BioNTech, in a move that could accelerate U.S. inoculations.
Dr. Anthony Fauci, the top U.S. infectious disease expert, said on Tuesday the United States could get COVID-19 under control by early next year.
But the focus has turned to Jackson Hole and what Fed Chair Jerome Powell may say about tapering the U.S. central bank's stimulative bond-buying program when he speaks on Friday.
Markets expect Powell to sound dovish and echo concerns last week by Robert Kaplan, the Dallas Fed president, who said he might reconsider the start to tapering due to the Delta variant of the coronavirus, said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
"The risk is that Powell does not really say anything too different but by virtue of not backing up Kaplan, comes across as more hawkish," Osborne said.
The dollar picked up support as Treasury yields nudged higher, he said. The benchmark 10-year Treasury later rose 5.7 basis points to yield 1.3474per cent. Algorithmic traders selling Treasuries after the 10-year yields broke above their daily 200-day moving average may have exacerbated the gains.
The dollar index, which measures the U.S. currency against a basket of six major trading currencies, was higher in early trading, then eased 0.06per cent to 92.8550.
The euro gained 0.09per cent at US$1.1766, while the yen fell 0.32per cent at US$110.025.
The greenback had rallied until the start of this week, with the dollar index hitting a 9-1/2-month high of 93.734 on Friday, on fears over the Delta variant's economic impact and as the Fed signaled its tapering of monetary stimulus was likely this year.
Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group, said there's been skittishness over growth and sector rotations, which has boosted the dollar because of its safe-haven status.
"In the short term, we're still going to be trading in ranges, with upside bias," Gkionakis said.
Dollar underperformance after Jackson Hole could be a buying opportunity ahead of the release of U.S. data next week, including the non-farm payrolls report for August, said Valentin Marinov, head of G10 FX research at Credit Agricole.
"Potential positive surprises from the NFP in particular could put QE (quantitative easing) taper back among the main FX market drivers and support the USD," Marinov said.
Sterling rose 0.22per cent to US$1.3758 while Australia's dollar recouped early losses to trade up 0.25per cent to US$0.7276.
The dollar gained 0.08per cent to 1.2599 against the Canadian dollar. Earlier the dollar was stronger as commodity prices, and especially crude oil, had moderated. But oil later surged.
Brent crude, the international benchmark, rose US$1.20, or 1.7per cent, to US$72.25 a barrel after gaining 9per cent on Monday and Tuesday from last week's close.
The Canadian currency still looks fundamentally undervalued but the case for a significant rebound after recent volatility has weakened, Osborne said. The narrowing of U.S.-Canadian spreads will make it harder for the Canadian dollar to strengthen materially for now, he said.
"Generally, we expect the U.S. dollar to grind higher in the next few weeks and months," he said.
(Reporting by Ritvik Carvalho; Additional reporting by Kevin Buckland in Tokyo; Editing by Bernadette Baum, Barbara Lewis and Chizu Nomiyama)