Dollar Up; Fed Remains Accommodative

The dollar drifted higher in early European forex trading on Friday, but it remains anchored near two-week lows. In addition to disappointing jobless data was the Federal Reserve showing no signs for changing its ultra easy monetary policy stance.

The Dollar Index added 0.2% at 92.278 at 2:55 AM ET (0755 GMT). It previously dipped as low as 92.037 earlier Friday for the first time since March 23. This week was the index’s largest fall so far this calendar year, dropping around 0.8%. 

USD/JPY gained 0.2% at 109.47, EUR/USD lost 0.2% to 1.1888. It  remains, however, over 1% up this week, while the risk-sensitive AUD/USD slid 0.7% to 0.7595. This came after Australia’s central bank warned of excessive lending risk.

Last quarter, rising treasury yields led to substantial dollar gains. That was amid expectations that a strong economic recovery and rising inflation would force the Federal Reserve to rein in its ultra easy monetary policies sooner.

Lately, however, this tone has changed, with the weekly initial jobless claims figures on Thursday actually showing U.S. unemployment rose last week. The minutes for the Fed’s last meeting showed that the officials have so far remained committed to monetary policy support.

At a virtual International Monetary Fund conference on Thursday, Fed Chair Jerome Powell stated that policy wouldn’t shift. That would be until there was a prolonged spell of strong economic data. James Bullard, a board member, said the Fed should not even discuss changes until it is clear the pandemic is over.

Analysts at ING in a note wrote that they expect the very accommodative Fed to eventually weigh on USD as they move into the summer.

Other Currencies Movements

GBP/USD dropped 0.4% to 1.3674, as sterling was hurt by growing concerns about Britain’s reliance on AstraZeneca’s vaccine to continue. 

Safety concerns have plagued the vaccine brand amid links to very rare blood clotting issues. This week, both EU and British medical regulators have declared that the benefits of the drug still outweigh the risks. However, a number of countries have restricted its use.

The U.K. government has recommended other vaccines should be used, where possible, with younger people.

Earlier in the day, China released stronger-than-expected March consumer and producer price indexes data. It was followed by USD/CNY edging up 0.1% to 6.5569. 

The CPI increased 0.4% year-on-year and the PPI grew 4.4%. This was its fastest rate in over two and a half years.