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Dollar Down as Investors Digest Fed Comments

The dollar inched down on Thursday morning in Asia, giving up gains from the previous session over U.S. Federal Reserve…

By financial2020myday , in Forex , at September 24, 2020

The dollar inched down on Thursday morning in Asia, giving up gains from the previous session over U.S. Federal Reserve officials’ warnings over the U.S. economic recovery from COVID-19 and disappointing data from both the U.S. and Europe.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.02% to 94.422 by 10:04 AM ET (2:04 AM GMT). The dollar has seen a rally during the past week as the COVID-19 outbreak in Europe diminished investor optimism over the progress of a potential COIVD-19 vaccine.

A slew of Fed officials stressed the need for more fiscal stimulus to sustain the recovery on Wednesday, as investors continue to lose hope that the U.S. Congress would pass the latest support measures.

Fed Chairman Jerome Powell led the charge during a congressional hearing, where he stated that more support was likely to be necessary. Other officials adding their voices were Cleveland Fed President Loretta Mester, Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren. Rosengren said that it would take another wave of infections to prompt action, and this not likely until next year.

Alongside the Fed’s warning, data released on Wednesday showed that U.S. business activity slowed in September and several Fed policymakers warned that further government aid is needed to bolster the economy.

In Europe, the Markit Composite Purchasing Managers Index (PMI) and the services PMI saw falls in September, with the services PMI slipping below the 50-mark separating contraction from expansion to 47.6. With the continent currently battling a fresh outbreak of COVID-19, investors are looking to the Ifo survey, due later in the day, to gauge German business sentiment.

However, some investors said that the greenback could continue to be bolstered as the number of COVID-19 cases continues to rise and the Fed’s comments prompt investors to repatriate funds from riskier assets.

“Risk is being sold across the board, and there is a big unwinding of dollar shorts,” Daiwa Securities foreign exchange strategist Yukio Ishizuki told Reuters.

“Questions surrounding COVID-19 and the need for even more stimulus are turning flows back to the dollar,” Ishizuki added.

The USD/JPY pair inched 0.05% to 105.42.

The AUD/USD pair edged down 0.19% to 0.7060 and the NZD/USD pair inched down 0.09% to 0.6540. The Antipodean currencies are expected to come under pressure due to a recent decline in commodity prices and a growing expectation of additional monetary easing, some investors said.

The USD/CNY pair edged up 0.13% to 6.8177.

The GBP/USD pair inched up 0.02% to 1.2725, after hovering near its weakest levels since late July.

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