US Dollar Index Rebounds on Stronger Economic Growth
US dollar bounced back sharply after the Federal Reserves decided to keep the interest rates low until they reach their employment and inflation goals. The Central Bank has also optimized investor’s sentiments by presenting stronger than expected economic recovery projections. They hinted faster employment growth in the days ahead.
After falling below 93 levels on Tuesday amid strong Chinese data, the US dollar rebounded back above the physiological 93 mark in late Wednesday trading. The greenback has extended the upside momentum on Thursday as stocks and risker currencies slid on fed’s policies.
The chairman Jerome Powell said the economy will shrink around 3.7% this year compared to the previous forecast for the drop of 6.5%. The unemployment rate will drop at a faster pace, thanks to stronger economic recovery and easy lending policies.
“The Fed really underscored its dovish stance and how inflation holds the key to the policy outlook. Overall it was very dovish,” said Joe Manimbo, senior market analyst at Western Union Business Solutions on Washington.
Economic recovery projections have also been improving for the second-largest economy. China has reported the first monthly retail growth since the pandemic hit the country.
“I would say the biggest impulse this week was the stronger activity data for the month of August from China, and maybe a bit of ongoing optimism about the vaccine,” said Vassili Serebriakov, an FX strategist at UBS in New York.
The euro slid against the greenback on Wednesday and extended the momentum on Thursday. The EURUSD pair is currently trading around $1.17 level, down from the $1.19 mark on Tuesday.
The survey has been showing that investors’ confidence increased sharply in the German and Eurozone economies. Declining coronavirus infections along with prospects for the vaccine launch are adding to sentiments. Germany expects 2020 GDP to shrink by 6.5% compared to the previous forecast for high single-digit contraction.