The week ends with a decline for the US dollar amid growing demand for risky assets around the world, as well as persistent statements by both the Fed Chairman and his members. Powell's point is that the monetary rate will not change in the near future.
Speaking at the IMF conference on Thursday, the Fed's head actually repeated all the postulates that are the grounds for maintaining the current course of monetary policy. In addition, he also mentioned the negative impact of the coronavirus pandemic on the US economy, which is holding back the recovery with its presence and so, the country's economy will differ from before the pandemic. J. Powell also discussed the expected rise in inflationary pressures, saying that it is likely to happen anytime soon. Nonetheless, he assured that the regulator has all the tools to curb strong inflationary growth.
Overall, Powell was fairly optimistic. This was reflected again in the return of good mood in the markets, which was manifested in the growth of stock indexes, not only in the US, but also in Europe. It can also be noted that there is more noticeable support again in the United States amid the companies shares that were actively in demand during the pandemic, while on the contrary, the recent received support amid the expectations of increased economic growth have somewhat passed.
The US dollar ends the week with losses against a basket of major currencies, due to increased demand for risky assets and the fact that it is the funding currency amid the unprecedented stimulus measures and various measures of support for the US population by the government and the Fed.
Today, the national currency is slightly rising, but it will continue to be under pressure, since the main supporting factor – the growth of government bond yields has stopped. It is difficult to say whether it will resume, so it will only be discussed after the publication of new data on US inflation. In the meantime, we expect that yields will consolidate at the highs they have reached.
So far, it can be fully argued that the Fed has managed to end the uncontrolled growth in yields and reassure investors in the debt market, at least until the release of new data on inflation.
Considering the current situation in the markets, we believe that the moderate demand for risky assets is likely to continue next week, which will negatively affect the dollar rate.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1880. We expect it to further rise to the level of 1.1945 after a slight downward pullback.
Gold's price is expected to be pushed up by the demand for risky assets and the weakening of the US dollar. If so, it may further rise by 1765.00.