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Returning Dollar Weakness Dominates Forex Market

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Returning Dollar Weakness Dominates Forex Market
  • Fed Interest Rate Policy Weakens USD
  • GBP/USD Hits New 2020 High
  • US Markets Set For Another Strong Opening

The US Dollar has been through a torrid time of late. The currency has exhibited weakness that has not been seen for many years. A positive reversal earlier in the week was wiped out today as announcements on the retention of a low interest rate took any steam out of the Dollar. Other forex market pairs have capitalized though, with the Euro improving, and the British Pound jumping to its highest position of the year despite having its own issues to contend with. Positivity continues in other areas though, with US stocks set to open higher again Friday.

Lower Rates Higher Inflation Plan Pressures Dollar

The chief of the Federal Reserve announced on Thursday that interest rates would remain low through 2022 as the Fed moved to pursue a new economic strategy which will see them allow inflation to rise beyond the previous boundaries which were maintained.

This move it is hoped will stimulate the markets and economy in general. Lower cost borrowing, and increased consumer spending power is sure to have a positive impact on the stock market as inflation will be allowed to move beyond 2%, though this has had an immediate negative impact on the USD forex market. This move will likely keep those forex trading the market away from traditional safe haven currencies as they US Dollar is typically viewed.

Pound Bounces Back to New High Point

One of the major currencies to benefit from the dovish message sent out by Fed chief Powell was the British Pound. The currency had been struggling to gain any traction throughout the week as Brexit negotiations brought about no progress, and rumors circulated about the future of the UK Prime Minister. They were quick to take advantage of the Dollar weakness though with the Pound shooting to a 2020 high above $1.33.

The future direction is certain to be somewhat hinged on the address if Bank of England Governor Andrew Bailey. He speaks later today at the same meeting addressed by Fed chief Powell. If he were to, as expected, adopt a similar economic roadmap in terms of rates and inflation targeting, then forex brokers could well see another movement away from the Pound.

Strong Open Expected From Record Breaking Markets

A strong beneficiary of what is being referred to as bullish policymaking from the Federal Reserve will be the equities market. They are already enjoying a strong month with the S&P 500 targeting the best August it has had in more than 30-years as it continues to close at record highs.

That looks set to continue today with pre-trading from all the major US indices pointed in a positive direction. The Dow Jones has added 150 points while others are following suit. With no mention of COVID-19 impact, and record earnings reports coming in from many of the markets big names, it certainly seems traders on the street are enjoying an Indian summer.

 

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Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

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