Although the US dollar index moved above the 92 level on Wednesday against the basket of six major currencies, the market analysts anticipate the greenback will remain in a bear mode for a long time due to Federal Reserve’s easy policies.
Federal Reserve Chairman Jerome Powell’s stance over the monetary policy has dented investor’s sentiments and devastated the future fundamentals. This is because Powell has indicated that the interest rate will stay lower for longer, which is a negative indicator for the US dollar.
The fed also announced that they will permit inflation numbers to move above the 2% level to improve the employment level.
The investors reacted negatively to Powell’s stance. US dollar has generated big losses in the past couple of sessions and hit this year’s low of 91.7 mark. The USD index has trimmed some losses on Wednesday.
“With Chair Powell cementing the negative real yield narrative for the dollar, there is little to suggest the current U.S. dollar bear trend is to stop, wrote analysts Francesco Pesole and Petr Krpata of ING, in a note.
The euro has hit the highest level of $1.20 for the first time since 2018 due to dollar weaknesses. Euro retreated slightly on Wednesday as the common currency is now trading around $1.9 level.
“What markets are coming to terms with is that there will not be an interest rate incentive (for the dollar) in the near future, which is why you’re seeing the dollar really falling deeply and in a more sustained and consistent way. And why you’re seeing the euro breakthrough,” said Juan Perez, senior foreign exchange trader, and strategist at Tempus, Inc.
Despite some retreat, the market pundits believe the euro will extend gains in the coming days, mostly due to the bearish outlook for the US dollar index. British Pound and the Australian dollar are also trading at multi months high against the US dollar.