Dollar Still Near Lows with Fed’s Dovish Monetary Policy

The dollar was largely flat near multi-week lows on Thursday as the U.S. Federal Reserve maintains its very dovish monetary policy. This boosts confidence in the global economic recovery.

On Wednesday, the Federal Reserve decided to leave the policy interest rate near zero. It kept a $120 billion monthly pace of asset purchases. This is while acknowledging that there had been an improvement in the economic conditions.

Fed chairman Jerome Powell continued to signal that policy will remain steady for some time. That was to the benefit of the global economy, with inflation risks distorted by the drop in prices last year due to the pandemic. 

Analysts at Nordea in a note wrote that the inflation rate will increase markedly above 2%. However, the U.S. central bank considers it transitory due to bottlenecks and base-effects. 

The only true inflation stems from the labor market, the Fed said, why the labor market is now the one to watch. This was in the note by analysts at Nordea.

Having said, the Commerce Department will publish its snapshot of Q1 GDP growth on Thursday at 8:30 AM ET (1330 GMT). It is expected that the economy had grown at a 6.1% annualized rate in the first three months of the year. 

This would be the second-fastest GDP growth pace since Q3 of 2003.  Moreover, it would follow a 4.3% rate in Q4.

This was ahead of the impact of the $1.8 trillion package for families and education that President Joe Biden unveiled on Wednesday in his first joint speech to Congress. 

Currencies Movements

The Dollar Index was flat at 90.610 at 2:55 AM ET (0755 GMT). Trading was still near a nine-week low.

The EUR/USD pair traded down 0.1% at 1.2119. It previously hit its highest level against the dollar since late February. 

The GBP/USD pair added 0.2% to 1.3962 while the USD/JPY gained 0.2% to 108.78. The risk-sensitive AUD/USD crept 0.1% higher to 0.7794 and the NZD/USD climbed 0.1% to 0.7258.

Furthermore, the USD/TRY edged higher to 8.1972. This was ahead of the first public policy presentation by Governor Sahap Kavcioglu, Turkey’s new central bank governor.

It is expected for Kavcioglu to raise inflation forecasts. The recent slide in the lira, after the predecessor was ousted, exposed the limited room to deliver the interest-rate cuts sought by President Recep Tayyip Erdogan.