Asian session review: USD edges higher, as taper expectations renew

USD rose slightly against most of its major rivals in the Asian session on Wednesday amid raised expectations that the Federal Reserve might go ahead with its plans to scale back stimulus despite a sharp slowdown in the U.S. jobs growth in August. 

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged up 0.07% to 92.57.

Some investors believed that the U.S. central bank’s policymakers might look past the August disappointing employment data and stick with their tapering plans. This view was supported by the latest comments of the St. Louis Fed president James Bullard, who told the Financial Times that the Fed should begin reducing its bond-buying program soon, despite weak U.S. jobs growth in August. “When you’re in a crisis, you have to be prepared for twists and turns,” Bullard noted, adding that he is looking for job gains to average out around 500,000 a month this year. He also noted that there is plenty of demand for workers but the workers may not want to take jobs right now. To give the Fed “optionality” to hike interest rates in 2022, the U.S. central bank should wrap up its asset purchases by the end of the first quarter, the president of the St. Louis Fed added.

As a reminder, the U.S. employment situation report for August, which was released on Friday, appeared to be mixed relative to economists’ estimates. The headline reading significantly missed expectations (actual 235,000 vs. economists' consensus estimate of 750,000), while the unemployment rate average fell in line with forecasts (to 5.2% from 5.4% in July) and hourly earnings increased 0.6% m/m, twice the expected pace. On this backdrop, market participants’ taper expectations cooled, while inflation concerns stoked. As a result, the U.S. dollar index declined to its lowest level since early August.