By Gina Lee
Investing.com – The dollar was down on Thursday morning in Asia, as the U.S. Federal Reserve’s stubbornly dovish monetary policy in its latest policy decision green-lighted the global reflation trade.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.08% to 90.520 by 1:17 PM ET (5:17 AM GMT). The index wallowed near a nine-week low and continued to move further away from the rally peak of 93.439 recorded at the end of March 2021.
The USD/JPY pair inched down 0.01% to 108.58. The dollar also gave up much of the week’s gains against the yen after hitting a high of 109.07 on Wednesday. However, a holiday in Japan could help minimize losses during the Asian session.
The dollar’s loss was the euro’s gains, with the single currency hitting its highest level against the dollar since late February 2021 while cracking major trendline resistance at $1.2114.
The Fed kept its interest rate unchanged at 0.25% as it handed down its policy decision on Wednesday as per investor expectations. Fed Chairman Jerome Powell played down speculation over a potential early tapering of asset buying, saying it was “not time yet” and that employment still had a long way towards recovery.
“The risk is the Fed is very cautious and delays taking the first steps to normalizing policy… low-interest rates amid an improving U.S. and global economy is a recipe for the dollar to continue decreasing,” CBA head of international economics Joseph Capurso told Reuters.
Despite Powell’s warning, the central bank also acknowledged that “indicators of economic activity and employment have strengthened.” The rosier economic outlook could keep the dollar on its downward trend as imports increased and drove the trade deficit to record highs in March 2021.
“That surge implies the U.S. current account deficit was around 4% of GDP in the first quarter, a significant weight on the USD in the medium term,” said Capurso.
Reactions to the U.S. GDP for the first quarter of 2021, when it is released on Friday, could also be more subdued. The Atlanta Fed’s “GDP Now” program forecasts GDP to expand by a whopping 7.9%, a warning sign of considerable upside risk.
The Fed’s stance markedly differs from that of its northern neighbor, the Bank of Canada. The latter has already begun to taper its asset-buying, which sent the greenback to a three-year low against its Canadian counterpart.
Dollar Down, Euro Up as Fed Maintains Dovish Monetary Policy
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