USD Fundamentals Firm, FED Dovish and QE to Continue
Traders have been bearish on the greenback for over nine months, beginning with Coronavirus cases which began to soar in the United States. Since then, the USD fell against literally every other major currency as capital flew to haven assets, pumping BTC and gold. However, the tide is changing. Yesterday, the FED left rates unchanged, keeping their interest rates and monetary policy locked in a "crisis-fighting mode" but hopeful because of the coronavirus vaccine and even more government aid packages. The effects were marginal gains and slight retracement for gold and major currencies.
The USD's performance has been frustrating, albeit the general confidence from market participants of a recovery. Jerome Powell, the FED chairman, remains dovish since the labor markets remain weak even with economic recovery expectations. The US government will continue to churn more cash under Bidenomics. Traders are looking at how best the government will be successful in their vaccine distribution and whether the infection count rate will fall. While they keep interest rates unchanged and monetary policy accommodative, their reflation might cause inflation to rise, a development that might see the FED intervene by raising interest rates.
Impact on the USD:
Neutral to Bullish: The FED, as expected, kept rates unchanged and won't slow down in the QE. This, technically, is bearish for the greenback. Hopes of a faster recovery, better economic reports, and a re-bounce of the labor market as coronavirus vaccine distribution is increased will be positive for the USD and the stock market.
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