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Weekly roundup: US Dollar tumbles past key levels as Fed alters its inflation policy

currency-newsWeekly roundup: US Dollar tumbles past key levels as Fed alters its inflation policy
The US dollar collapsed against the majority of its peers last week as the Federal Reserve announced changes to its policy framework, allowing inflation to run hotter for longer.

Announcing the measures at his opening speech at the Fed’s annual Jackson Hole Symposium, Fed chair Jerome Powell outlined plans for inflation to be allowed to stay ‘moderately above 2% over time’ as the Fed prioritises reaching full employment.

While the Fed made no moves to alter its monetary policy, the changes to its average inflation targeting implies that the Fed is likely to leave its ultra-loose monetary policy in place for longer than previously thought.

This has taken a heavy toll on the US dollar in recent days and propelled it below some key levels against the euro and the pound. 

Also limiting the appeal of the safe-haven US dollar over the past week has been a broad improvement in market risk appetite amidst the easing of US-China trade tensions and coronavirus vaccine optimism.

However, the slump in USD has been tempered somewhat as US data releases continue to print positively, signalling the US economy is making a steady recovery.

Turning to this week’s session, the USD selloff so far shows no signs of abating as the Fed’s new inflation targets continue to weigh on the US currency.

We may also see US political uncertainty start to increasingly drag on the US dollar, with the ongoing impasse over fiscal stimulus in Washington and the impending presidential election both key risk points. 

On the data front, all eyes will be on August’s payroll figures, where another healthy increase in employment numbers could help to offset some of the US dollar’s recent weakness.

Also of note will be the latest ISM PMI releases, with USD investors hoping for another robust expansion in the US private sector.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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