Dovish Fed Sends US Dollar Close to Nine-Week Lows Against Major Peers
Early on Thursday, the US dollar trades close to the lowest levels seen since nine weeks after the Fed came out sounding dovish as expected, causing markets to focus on possible reflation once again despite officials’ reassurances against such a possibility. At the time of writing, the US dollar index DXY is trading at around 90.70.
As feared, Fed chair Jerome Powell maintained that the central bank was not planning to ease off on its asset purchases anytime soon, especially since employment levels are nowhere close to pre-pandemic levels just yet. Traders feel that the Fed is being overly cautious even as the US economy shows signs of real progress towards a rebound, which could see inflation heating up in the coming months.
While the dovish outlook of the Fed keeps the US dollar under pressure, the reserve currency’s safe haven status has also weakened as the possibility of reflation has boosted risk appetite and sent equity markets surging higher.
Later today, the greenback could see some volatility on the release of US GDP figures. Economists are expecting a reading of 6.1% while the Atlanta Fed’s “GDP Now” forecast points to a far higher reading of 7.9%. A stronger than expected reading can drive some strength in the US dollar against other currencies, but a figure less than or equal to the forecast may not affect it.
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