Upbeat Market Sentiment Sends Dollar Weaker as Riskier Currencies Gain

The US dollar’s weakness continues into early trading on Thursday, with it trading close to the lowest levels seen in three years against other riskier rivals as markets focus on the Fed’s dovish policy and how it could create reflation in markets. At the time of writing, the US dollar index DXY is trading around 89.81.

During the previous session, Fed Chairman Jerome Powell once again stated that the central bank is planning to stay on course with its plans for monetary easing and very low interest rates until the US economy makes a solid recovery. A slight improvement in the economic outlook, as suggested by recent data releases, will not be enough for the Fed to reconsider its decision.

The extended monetary easing, in addition to the possibility of more financial aid in the form of coronavirus relief packages even as the vaccine rollout supports recovery, is likely to drive reflation in the US. Reflation could drive markets higher and boost the risk sentiment, keeping the US dollar under pressure in the near future.

Meanwhile, the US dollar is also losing ground against other riskier currencies, especially commodity currencies, as markets turn optimistic about possible economic recovery around the world. The currencies that have made the most gains against the greenback lately include the AUD, NZD as well as GBP and even CAD.