The U.S. dollar fell sharply against big currencies on Thursday, with bears reassuring the Federal Reserve that it will not accelerate the purchase of bonds as a green light to sell the currency.
“The latest blow to the dollar came from the Fed, which vowed not to touch policy even though the outlook for the U.S. economy is clear as it is now expected,” said Joe Manimbo. senior analyst at Western Union Business Solutions.
Weakness also reflected the growing expectations that Washington lawmakers will finally agree on a perceived economic bailout package that is necessary to overcome a sagging recovery, he said.
US DXY ICE Dollar Index,
which measures the currency against a basket of six major competitors, down 0.8% to 89.744, trading below 90 for the first time since April 2018. It is down 6.9% so far this year .
Moreover, the index has fallen nearly 13% since March, when it peaked more than three years ago when the COVID-19 pandemic pushed the U.S. economy into recession and which provoked a lump of chaos in financial markets, driving global investors into the safety of world reserves.
Dollar sales on Thursday were broad:
-
The EURUSD euro, the most important part of the DXY, rose 0.6% to $ 1.2270, hitting the highest against the dollar since April 2018. For the year to date, the currency has split up more than 9%.
-
The dollar fell to less than three years against the Japanese currency USDJPY,
-0.37% ,
declining 0.4% to ¥ 103.07. -
British pound GBPUSD,
+ 0.73%
it went up 0.8% at $ 1.3617, the highest level since April 2018. -
Currencies that typically accrue equities, commodities and other assets that are perceived as risky were doing just that, with the Australian dollar AUDUSD,
+ 0.65%
and NZDUSD New Zealand dollar,
+ 0.56%
each up 0.6% compared to the US. The dollar declined 0.1% against the Canadian dollar USDCAD,
-0.18% .
U.S. stocks pushed higher Thursday, with the S&P 500 SPX,
and Nasdaq Composite COMP,
hitting intraday trading records, while the Dow Jones industrial average DJIA,
rose about 130 points, or 0.5%.
A falling dollar is generally seen as a positive for U.S. and global equity as well as the world economy. It is also seen as the potential ingredient for a bullish turnaround in commodities at the dollar price.
See: How a weaker dollar could increase fuel prices in 2021
The Fed, at its last policy meeting in 2020 on Wednesday, reassured investors that the central bank would maintain its easy monetary policy stance, including their bond buying program, so that the The economy is “advancing” to recover from the damage caused by the virus. .
Fed Chairman Jerome Powell said in his press conference that the central bank would not be quick in releasing its monetary stimulus measures despite the central bank’s economic forecasts slightly more interesting than the previous statements.
“The FOMC dot plot looked hawkish… Mgr. Powell’s views were anything but, ”wrote Kit Juckes, global strategic macro at Société Générale, referring to the individual rate projections made by members of the Federal Open Market Committee of policy.
Of course, other central banks are also using surprising measures aimed at supporting their economies. And while a weaker dollar is seen as generally positive for the U.S. and the global economy, it has been a source of frustration for some competitors, including the European Central Bank.
Read also: How the strong euro is hampering the ECB’s efforts to boost eurozone inflation
But an important part of the story is based on interest rates – especially the difference between bond yields in the US and elsewhere. While Treasurys continues to outperform, say, German government debt, that gap has narrowed, reducing the incentive to hold the U.S. paper and weakening the source of support for the dollar.
Distribution between US TMUBMUSD02Y,
and the two-year German product TMBMKDE-02Y,
has fallen from 215 basis points, or 2.15 percentage points, to around 90 basis points this year, noted Mark Haefele, chief investment officer for UBS Global Wealth Management.
Dollar weakness “also reflects better prospects for more pro-circulating currencies amid recent positive vaccine news and a corresponding decline in demand for safe havens,” he said, in a note on Thursday, referring to has found support dollar bias during times of turmoil.
“Meanwhile, there appears to be a focus for U.S. fiscal stimulus, with Congress continuing to debate details of the $ 900 billion COVID-19 aid bill, putting pressure on debt. the US, ”Haefele said.
Read: Coronavirus stimulation talks to slide into weekend in Washington while barriers remain
Contribute to the development of opportunities for a trade deal between the European Union and the UK, last week’s negotiations that blocked access to the EU’s $ 2.2 trillion recovery fund, and the continued rollout of COVID-19 vaccines and the platform is set for the dollar to keep falling, Juckes wrote.
“The only problem is that it is falling too fast,” he said, noting that SocGen’s fourth-quarter euro forecast put the currency split at $ 1.27, about 4% above average. current level. The euro has risen by about 3% in the last month alone.