Federal Reserve Chairman Jerome Powell still managed to return calm to the markets
As a result, US stock indexes continued to grow, the EUR/USD pair reached one-and-a-half-month highs, and the greenback sank to its lowest levels since the beginning of the year.
Yesterday, Powell once again said that the central bank will not adjust monetary policy until the US economy shows clear signs of improvement, and will monitor any short-term surge in inflation. Powell's speech at the House Financial Services Committee echoed his previous speech in the Senate.
The Fed promises to keep interest rates low and print money for as long as necessary. This is negative news for the US currency.
The USD index plunged to 89.7 points on Thursday, reaching the lowest values since the beginning of January.
The dollar's weakness has been more pronounced in recent days, as it comes amid a rise in US 10-year bond yields to their highest levels in almost a year.
The greenback is expected to weaken as the global economy revives and the focus on reflationary trading increases.
In the meantime, the dollar may rise from time to time on outbreaks of risk avoidance associated with an overly optimistic orientation of markets to the global economic recovery and with concerns that mass vaccination may not be fast enough and effective enough to have a significant impact before the spring of 2022.
The COVID-19 pandemic will end early next year. This statement was made by the head of the Regional Office for Europe of the World Health Organization (WHO), Hans Kluge.
He believes that the virus will not disappear from the human population, but by the designated date, there will be no need for all restrictions. At the same time, Kluge stressed that this is only a forecast, and so far no one can say exactly how the situation will develop.
Powell also discussed the uncertainty on Tuesday.
"The normalization of the US economy is far from complete, and the future path remains uncertain," he said during a hearing before the Senate Banking Committee.
On Wednesday, Powell finally dispelled rumors about the possibility of tightening monetary policy in the United States as early as 2022, which stimulated rates for reflation and spurred demand for risky assets.
"The markets understand that the punch bowl is not going anywhere anytime soon. The monetary and political backdrop should support risky assets for some time to come," National Australia Bank strategists said.
Against the backdrop of Powell's dovish comments and the recovery of risk appetite, the EUR/USD pair rose above 1.2200 for the first time since early January.
"The euro is unlikely to benefit much from the global reflationary scenario, as the EU is still in the pit of coronavirus restrictions," Saxo Bank experts say.
Nordea specialists, in turn, note that the increase in long-term profitability in the EU is already causing concern for the ECB. Against this background, the EUR/USD pair has probably already reached a growth ceiling and can now fall by the end of the year to the 1.1600 region, they believe.
"Long-term US yields are likely to continue to rise amid expectations for a massive new stimulus package for the national economy, as well as the green light that the Fed gave to yields. It will look good against the backdrop of the dynamics of profitability in Europe. It is not yet clear how aggressively the ECB is prepared to deal with the rise in nominal profitability in the region. At least at this stage, the central bank does not make serious changes to the emergency asset repurchase program (PEPP), but in the future it may take some steps. We expect the EUR/USD to decline amid the ECB's concerns about the overly strong euro. In this regard, we adhere to the forecast that by the end of 2021 the pair will slump to the area of 1.1600," Nordea said.