Dollar drops as the Fed said to introduce new measures to stimulate the economy

Mable, Mengyuan Ge

Thu Apr 15 2021 08:00:00 GMT+0000 (Coordinated Universal Time)

Screenshot%202021-05-13%20at%208.23_edit

(HONG KONG) The dollar drops on Wednesday against a basket of currencies as Jerome Powell, chair of the U.S. Federal Reserve, indicated that new measures might be carried out to stimulate economic growth in addition to the $120 billion-per-month of Treasury and agency mortgage-backed securities that the Fed has been buying since 2020.

After the Fed announcement the dollar dipped in contrast of a rally in recent months while other major economy’s currencies saw a boost.

The Singapore dollars rose 2.2% in value, one U.S. dollar bought 1.34 Singapore dollars Wednesday, down from US$1.37 Tuesday; One US dollar fetched 109.15 Japanese yen Wednesday afternoon, down from 110.80 yen Tuesday; One U.S. dollar fetched 6.54 Chinese yuan Wednesday afternoon versus 6.55 yuan on Tuesday; The euro stood at US$11.9 Wednesday, up from US$1.16 Tuesday; The British pound was worth US$1.37 Wednesday, up from US$1.36 Tuesday.

Since the start of February, the dollar has been going high on expectations that the U.S. economy would reopen in the next few months after the U.S. showed COVID vaccinations outpacing the government’s official targets. US dollar had strengthened by 8% versus the euro, 10% against the British pound, and 12% against the yen.

The stock market responded divergent accordingly. The Dow Jones Industrial Average fell 3.4% from a record high point on Tuesday, closed at 32,532.24 points. Japan’s Nikkei 225 Stock Index rose 2.1% Wednesday morning to 29,640.87.

“We’re seeing a big sell-off of U.S. assets,” said Sarah Painful of Republican Securities Ltd. “The big beneficiaries are the Asian currencies, especially the yen, but I think this is just a short-term phenomenon.”

Treasury yield dropped as well, pulled back from last month’s surge. Ten-year U.S. bond yields eased to 1.62% on Tuesday, well below a 14-month peak of 1.776% hit late March, reducing the dollar’s yield attraction.

However, the widened US trade deficit might create downward pressure on dollar. According to the latest data in February, US trade deficit widened to US$71 billion, increased 4.8% from the January deficit. Imports fell 0.7% in February to US$258.3 billion, while exports fell 2.6% to US$187.3 billion.

Additional desired information:
1. Consumer Price Index of US – inflation is important.
2. Other major economies Central Banks’ expectations for economic growth and Monetary policies for 2021 and years to come. Namely Europe, Japan, and China.
3. US Fed GDP expectations for 2021 and monetary policies.