By Peter Nurse

Investing.com - The dollar traded lower in early European trade Monday, as gains in equity markets boosted sentiment, prompting traders to take positions in riskier currencies ahead of the Federal Reserve’s Jackson Hole meeting.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 93.328, retreating from Friday’s high of 93.734, it’s strong level since Nov. 4.

EUR/USD was 0.2% higher at 1.1715, off Friday's 9 1/2-month low of 1.1664, USD/JPY was up 0.2% at 109.97, GBP/USD rose 0.3% to 1.3660, up from last week’s one-month low of 1.3602, and the risk sensitive AUD/USD climbed 0.4% to 0.7158, bouncing off Friday’s 9 1/2-month low of 0.7106.

Equity markets have bounced in Asia Monday, continuing Wall Street’s stronger finish on Friday, and Europe is set to follow suit, helped by the news that China, the world's second largest economy, reported no new locally transmitted Covid-19 cases for the first time since July.

That said, this renewed confidence still seems brittle, with the release of a raft of manufacturing surveys, both in Europe and the U.S., likely to show slowing growth on the back of the latest outbreak of Covid-19 cases, driven by the highly transmissible delta variant.

Services PMIThe equivalent data in Japan earlier Monday showed Japan's factory activity growth slowing in August, while that of the services sector shrank at the fastest pace since May last year.

Of major interest this week will be the U.S. Federal Reserve’s annual Jackson Hole symposium, beginning on Aug. 26, which will be held online this year due to the Covid-19 outbreak.

This get-together is widely expected to indicate that the central bank will start tapering its massive bond-buying program this year, although influential FOMC member Robert Kaplan threw this into doubt on Friday by stating that he may need to adjust that view if the delta variant slows economic growth materially.

“The Federal Reserve is moving closer to tapering,” said analysts at Nordea, in a note, and “this is likely to prove to be a strong USD scenario, as was also the case in 2013/2014 when the Fed tapered the QE3 programme.”

The bank now targets “levels around 1.10 in EUR/USD over the forecast horizon and expect the bulk of the move to happen sooner rather than later in conjunction with the launch of the tapering process.”

Elsewhere, USD/SEK fell 0.2% to 8.7887 after Sunday’s resignation by Sweden’s Stefan Lofven as prime minister, leaving in November, with the likely replacement being Finance Minister Magdalena Andersson, seen as favoring fiscal prudence.