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Dollar Edges Lower; Powell Testimony Seen as Dovish

The dollar drifted lower in early European trading Wednesday, with traders betting on riskier currencies after Federal Reserve Chairman Jerome Powell kept a dovish stance in his semi-annual testimony to Congress.


At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 90.058.


EUR/USD rose 0.1% to 1.2156, USD/JPY was up 0.3% at 105.50, while the risk-sensitive AUD/USD rose 0.1% to 0.7920, trading near a three-year high.


Fed chief Powell reiterated on Tuesday that U.S. interest rates will remain low for some time and the central bank will keep buying bonds to support the U.S. economy, even as Congress prepares to authorize President Joe Biden’s new $1.9 trillion support package.


“The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell said, in the text of his testimony delivered Tuesday to the Senate Banking Committee. He continues his two-day testimony later Wednesday.


While these policies are designed to support the U.S. economy, many see them as being long-term negatives for the dollar. 


“USD liquidity will arrive in truckloads already this week,” said analysts at Nordea, in a research note, “which should be good news for risk appetite but not for the USD.”


There is growing optimism about the global economic outlook, resulting in money flowing toward currencies that are expected to benefit from a pick-up in global trade and to countries that are bouncing back quickly from the pandemic.


For example, NZD/USD rose 0.5% to 0.7373, a three-year high, after the Reserve Bank of New Zealand kept its interest rate unchanged at 0.25% earlier in the day. Despite saying that it was ready to reduce its overnight cash rate further if needed, the RBNZ said the risks to the economy from here on were "balanced".


Standard & Poor’s rating agency upgraded its country rating on New Zealand to AA+ earlier this week, the world’s first sovereign upgrade since the start of the pandemic, citing its successful containment of Covid-19 and resultant economic recovery.


Additionally, GBP/USD was up 0.5% at 1.4176, rising to its highest level since April 2021.


U.K. Prime Minister Boris Johnson outlined his plan to ease the current lockdown restrictions in stages earlier this week as the country continues its rapid vaccine rollout.


Reference by: investing.com

Feb 25, 2020

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