Dollar perks up to trade above one-week low on 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 that 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.

The dollar index, which tracks the currency against six rivals, edged up 0.07% to 92.981, 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.

However, with Delta 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'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."

Gkionakis added that he thinks Jackson Hole won't be a big event for the dollar.

"The takeaway has been well telegraphed so far," he said.

The dollar gained 0.06% to 109.745 yen, another safe-haven currency, near the middle of the trading range since early July.

Against the euro, the dollar fell about 0.1% to $1.1744, remaining close to the one-week low of $1.17655 touched overnight.

Sterling traded flat at $1.3730 after rising to as high as $1.37475 on Tuesday, its strongest since Nov. 19.

Australia's dollar dropped 0.06% to $0.7253 after touching a one-week high of $0.7271 in the previous session.

"Global growth concerns, or lack thereof, will likely remain the major driver of the USD until Friday," Kim Mundy, a strategist at Commonwealth Bank of Australia (OTC:CMWAY), wrote in a report.

"The risk is skewed to a move higher on Friday if Chair Powell reinforces that economic data are consistent with a near-term tapering."

CBA expects the Fed to announce its intent to taper in September, actually begin tapering in October, and finish by September 2022, she added. "We believe the USD uptrend has further to run."