The U.S. Dollar has been largely kept at bay over the last six weeks, struggling to regather upside buying pressure that hit the market early in March.
As a reminder, the markets were forced to scramble for Dollars over the period of the week commencing March 9 to the week of March 16. It was as a result of mass panic due to the impact of Coronavirus globally, as the reality started to hit and spook investors.
The pressure to the downside for the greenback (USD) or at least its struggle to maintain upside momentum, is due to the actions from the FOMC. The central bank has conducted a huge amount of stimulus measures, across a variety of programs. They have effectively been pumping trillions of dollars in the economy, diluting the USD.
Given the most recent rate decision from the FOMC, the door is left open to greater action. On top of this, on Friday there was commentary from the heads of three Fed regional banks, detailing that the aggressive efforts already taken to keep companies and firms afloat are only the start of what will be required to get the economy back to normal.
Richmond Fed President Thomas Barkin, St. Louis Fed President James Bullard and Dallas Fed President Robert Kaplan, all detailed how the path out of the crisis may be both slow and complex. All expect highly inflated unemployment numbers, which of course is a massive negative and one of the Fed’s leading influencers for monetary policy decisions.
We’re going to need stimulus going into the rest of the year and into next year so we grow faster, so we work down this unemployment rate.
What does this mean for the USD?
The USD has already been on the back foot as a result of the current stimulus actions, however, there is still potential room for deeper falls.
At some point or another, the USD will be subject to a huge bounce and surge higher, after it's done falling. I note this because of all of this Fed stimulus, and its impact versus; UK, Europe and Japan, could be a source of strength for the USD. Back in 2009 when quantitative easing was first used, the dollar was boosted by the confidence effect, it was seen that a more expansive policy is going to be driving faster economic recovery.
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