Dollar holds above one-week lows, supported by Delta variant fears

© Reuters. FILE PHOTO: A U.S. dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

By Ritvik Carvalho

LONDON (Reuters) - The safe-haven dollar gained on Wednesday to trade above a one-week low versus major peers amid concerns the highly contagious Delta coronavirus variant could derail a global economic recovery.

Risk appetite in global markets has improved since the U.S. Food and Drug Administration granted full approval to the COVID-19 vaccine developed by Pfizer (NYSE:PFE) and BioNTech in a move that could accelerate U.S. inoculations.

Dr. Anthony Fauci, the country's top infectious disease expert, said on Tuesday that the United States could get COVID-19 under control by early next year.

Still, the dollar index, which tracks the currency against six rivals, edged up 0.1% to 93.019 on Wednesday after dipping to 92.804 the previous day for the first time since Aug. 17.

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 Delta's economic impact and as the Federal Reserve signalled a tapering of stimulus was likely this year.

"We've had a bit of a growth scare, style and sector rotations... and that's definitely boosted the dollar because of its safe-haven status," said Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group. "In the short term, we're still going to be trading in ranges, with upside bias."

With the Delta variant clouding the outlook, expectations have diminished that Fed Chair Jerome Powell will indicate a timeline for tapering when he speaks at the Fed's annual economic symposium at Jackson Hole, Wyoming, on Friday.

"We expect Fed Chair Powell to strike a fine balance between touting the recent U.S. economic recovery and the challenges lying ahead, including the challenge of unwarranted tightening of the U.S. and global financial conditions that could derail the recovery," said Valentin Marinov, head of G10 FX research at Credit Agricole (OTC:CRARY).

"That being said, I think that any dollar underperformance in the wake of Jackson Hole could represent a buying opportunity ahead of the key U.S. data releases next week. Indeed, potential positive surprises from the NFP (non-farm payrolls) in particular could put QE (quantitative easing) taper back among the main FX market drivers and support the USD."

The dollar gained 0.2% to 109.89 yen, another safe-haven currency.

Against the euro, the dollar was 0.15% higher at$1.1739, remaining close to the one-week low of $1.17655 touched overnight.

Sterling traded 0.1% lower at $1.3716 after rising to as high as $1.37475 on Tuesday, its strongest since Nov. 19.

Australia's dollar dropped 0.08% to $0.7251 after touching a one-week high of $0.7271 in the previous session.