US Dollar Under Pressure – Fed’s Dovishness, More Stimulus Weigh
Arslan Butt • 1 min read
Early on Friday, the US dollar has turned bearish once again, bringing its momentary rebound to a halt, after Fed Chair Jerome Powell hinted at the central bank maintaining a dovish outlook for an extended period of time. At the time of writing, the US dollar index DXY is trading around 90.33.
At an even in the previous session, Powell remarked, “When the time comes to raise interest rates, we’ll certainly do that, and that time, by the way, is no time soon. If inflation were to move up in ways that are unwelcome, we have the tools for that, and we will use them.”
Fed’s comments maintain that the Fed is unlikely to hike interest rates anytime soon, keeping the dollar under pressure. The Fed’s asset purchase program has increased the supply of the reserve currency and sent its value lower, even as it attempts to remedy some of the damage caused to the US economy due to the ongoing coronavirus pandemic.
The US dollar is also trading bearish on the back of Biden’s plans to unleash more fiscal stimulus worth $1.9 trillion. More stimulus would increase government borrowing, exerting pressure on US government bonds and weighing on the currency.