The United States Fiscal Support and Federal Reserve

Let us check the market. There was the United States Federal Reserve’s upbeat assessment of the economic recovery. It happened because its increased tolerance for higher inflation pushed Treasury yields higher. Thus, on Thursday, the dollar firmed against major currencies.

The Federal Reserve pledged to keep rates near zero until the end of 2023 when inflation is on track to ‘moderately exceed’ the two percent inflation target. The labor market reaches ‘maximum employment’ at its policy meeting.

Also, Federal Reserve expects economic growth to improve after the coronavirus-induced drop they projected in June.

To trade at 93.493, the U.S. dollar index rose around 0.32% against six major currencies. It changed hands at 1.1763 against the euro. It briefly hit a one-month low.

After the Federal Reserve’s announcement and weaker-than-forecasted United States retail sales data, the greenback initially fell. Nevertheless, after Chair Jerome Powell’s comment on the economic outlook, it swung into positive territory.

United States

After the benchmark ten-year United States Treasury yield rose above 0.7% overnight, broad United States dollar buying followed. It is a reaction resembling that of the Federal Reserve’s Jackson Hole symposium last month. It is what Mitsuo Imaizumi said. He is a chief FX strategist at Daiwa Securities.

Moreover, Imaizumi added that it is the same reaction the market had when Federal Reserve Chair Powell introduced a new framework last month. After the announcement, longer-term yields went up. Furthermore, Imaizumi thinks people feel they will not sell the United States dollar, based on the higher interest rates.

Analysts said that unless more fiscal stimulus will come, there is a risk of a slowdown in economic activity.

Shinichiro Kadota works at Barclays. He is a senior strategist. So, Kadota said that he thinks the focus will be on the United States fiscal support, besides the presidential election. That is the news of the market. You can see what happened in the United States. Federal Reserve is making some moves and currencies are responding to it.