The US Dollar Fell to Two Year Low After Fed Kept Interest Rate Unchanged

The US dollar slipped to two year low against the basket of other major currencies as Federal Reserve’s chairman kept the interest rate around zero range.

The majority of traders believe the fed’s interest rate policy will increase inflation numbers in the coming days. The real yields also fell to a historic low level on Wednesday.

“Forex markets will be laser-focused on whether there is a signal that it will tolerate higher inflation, as this could weigh on real yields, and thereby the dollar, further,” analysts at Action Economics said in a report.

The US dollar index fell to 93.39 level for the first time in two years against the basket of major currencies.
The steep drop in the US dollar value has pushed other currencies higher. The Australian dollar surged to 15 months high against the US dollar while the euro has also hit a 22-month high of $1.17815.

The market analysts are seeing more pain for the US dollar in the days to come.

“The dollar’s outlook remains weak thanks to the diverging trends in coronavirus cases between Europe and the U.S.,” said Ulrich Leuchtmann, head of foreign exchange and commodity research at Commerzbank.

Investor’s sentiments were also impacted by fed’s chairman commentary about the economic recovery. The chairman claims that economic recovery is getting a hit from the increasing coronavirus infections all over the US. He sees a lot of uncertainty for economic recovery.

The British pound gained a lot of value against the US dollar in the past few weeks, but market pundits are expecting more gains for sterlings ahead. US elections, lower corporate earnings, weakening economy, and changes in taxation rules could be the big headwinds for the US dollar.

“All paths point to a weaker US dollar against the euro and a stronger British pound in the months ahead. The election will give investors much to mull over, and a period of uncertainty could help the dollar’s safe-haven status to hold ground,” UBS said.