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Powell gave the green light to dollar sales

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The dollar is near a nine-week low on Thursday, as the hard-boiled forecast of the US Federal Reserve and bold plans to increase spending by the White House gave the green light to trade on the idea of ​​global reflation.

President Joe Biden’s push to increase spending by an additional $ 1.8 trillion is also fraught with widening the US budget and trade deficits, the dollar’s eternal Achilles heel.

The euro took full advantage of all of these dollar problems and tried to peak since late February at $ 1.2149 before stabilizing at $ 1.2134. A break of the trendline resistance at $ 1.2114 opens the way to bullish targets at $ 1.2196 and $ 1.2242.

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Fed Chairman Jerome Powell’s speech did not help the dollar. He dismissed rumors of an imminent cut in asset purchases, saying that the employment rate was still far from the target.

“The risk is that the Fed is very cautious and is postponing the first steps to normalize monetary policy,” said Joseph Capurso, head of international economics at the CBA. “Low interest rates amid a improving US and global economy are a recipe for a further decline in the dollar.”

Even the outperformance of the US economy has hit the dollar as it drives up imports, pushing the trade deficit to record highs in March, yesterday’s official report showed.

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“This jump means that the US current account deficit was about 4% of GDP in the first quarter, which will have a significant impact on the dollar over the medium term,” Capurso said.

It could also soften any reaction to the upbeat US first-quarter GDP report due later Thursday, for which market forecasts suggest a whopping 6.1% year-on-year growth.

The GDP Now estimate, which is closely monitored by the Federal Reserve Bank of Atlanta, showed that GDP increased by 7.9%, suggesting significant upside risk.

The Fed’s peacefulness was in stark contrast to the actions of the Bank of Canada, which had already begun to cut asset purchases, causing the dollar to plunge to a three-year low on the Canadian dollar at C $ 1.2287.

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Another notable breakout occurred against the Norwegian krone, where the dollar hit its lowest level since October 2018 at 8.1460 kronor.

The crown climbed higher on rising oil prices as the global economic recovery boosts commodity demand, a trend that also benefits the Australian and New Zealand dollar.

The dollar also lost most of its weekly gains against the yen, falling to 108.55 from 109.07 Wednesday’s peak. A holiday in Japan has preserved it in Asian watches.

Against a basket of currencies, the dollar was near a nine-week low of 90.543, far from the peak of the 93.439 rally reached in late March.

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