Dollar drifts lower on Fed talk

by Jonathan Adams
US dollar

Though the dollar had traded higher earlier on Thursday’s, in line with a rise in Treasury yields

The dollar drifted lower on Thursday in choppy trading, after Federal Reserve Chair Jerome Powell struck a dovish tone, saying the U.S. central bank is not raising interest rates anytime soon and rejecting suggestions the Fed might start reducing its bond purchases in the near term.

The Fed’s asset-buying program to support financial markets in a pandemic has weighed on the dollar, as it increased the supply of the currency and diminished its value.

The dollar, though, had traded higher for most of Thursday’s session, in line with a rise in Treasury yields, amid upbeat expectations about President-elect Joe Biden’s fiscal stimulus. But it changed direction as Powell spoke.

Powell said the economy remains far from the Fed’s goals and he sees no reason to alter its highly accommodative stance “until the job is well and truly done.” The Fed chairman was in a live-streamed interview with a Princeton University professor.

In early afternoon trading, the dollar index was little changed to slightly lower at 90.26. Investors also awaited details of Biden’s pandemic relief plan.

Since hitting a three-year low last week, the dollar has risen about 1.2%, as the prospect of more stimulus has weighed on U.S. government bonds, sending the benchmark 10-year Treasury yield above 1% for the first time since March.

The U.S. 10-year Treasury yield remained higher on the day, as Biden is expected to unveil a stimulus package proposal later on Thursday designed to jump-start the economy during the coronavirus pandemic with a lifeline that could exceed $1.5 trillion and help minority communities.

Since the beginning of the month, 10-year yields have climbed more than 20 basis points.

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