The Dollar is backed by the gloomy prospects of the Fed, for now

By Peter Nurse

The dollar has pushed up the start of the european session on Thursday, investors are ready to return to the shelter after the grim economic outlook from the federal Reserve.

Has 10: 10, the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.4% at 96,318. The USD/JPY was trading almost without change to 107,09, but the GBP/USD dropped 0.7 % to 1,2656.

The u.s. central bank predicted last Wednesday that the u.s. economy contracted by 6.5% this year and that the unemployment rate would be 9.3% at the end of the year.

It was a vision darker than what a lot of people in the market had expected, especially after the report shock on employment Friday, and has caused investors to flee equities, away from currencies more risky, to the bonds and the dollar.

The australian dollar retreated from a peak of 11 months, a decline of 1 % to 0,6929 $, the new zealand dollar has given up a summit of four and a half months and has dropped from 0.7% to 0,6493 $.

That said, the federal Reserve indicated that its flexible monetary policy should be maintained over the long term, the strength of the dollar should be a temporary phenomenon.

“The dollar, weighted by trade a finger to return to lower levels from mid-march, just before the markets for financing in dollars does not collapse and that the hoarding of the dollar is not growing,” said ING (AS:INGA) in a note to clients.

“There is no doubt that investors are rushing on the fact that the median of the FOMC expects the Fed funds rate to remain unchanged until 2022, thus maintaining the demand for assets with higher yields”.

The EUR/USD fell 0.1% to 1,1358, experiencing only small losses after reaching a peak of three months during the night.

The single currency has been boosted recently by signs of cooperation between the countries of the continent to combat the coronavirus, the executive Commission of the EU, proposing a stimulus money important, composed of grants and loans to each member State of the EU.

The Eurogroup a group of finance ministers of the EU, is to meet Thursday to discuss the stimulus funds of the EU.

However, “given the differences between the european Commission and, for example, the netherlands and Austria, the proposal for the stimulus funds must be investigated before it can be adopted by the different parliaments”, wrote analysts from Danske Bank in a research note.

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