Dollar Slid To Lowest Since March 2018

Optimism about a new $900 billion fiscal support plan in the United States, coupled with the Fed’s promise of ultra-accommodative long-term monetary policy, led to a further weakening of the dollar on Thursday.

In the New York interbank market, the dollar index, which measures its evolution against a basket of 6 benchmark currencies, fell 0.7% to 89.82 points, the day after the Fed’s announcements, and in anticipation of a new stimulus package in the US that could be adopted before the end of the week by the U.S. Congress. The greenback has now returned to its lowest level in more than two and a half years, in March 2018.

The Euro rose by 0.61% to $1.2271 on Thursday, rising to its highest since March 2018. The European single currency crossed the psychological threshold of $1.20 on December 1 for the first time in more than two and a half years. Since the beginning of the year, the Euro has appreciated by 9.4% against the greenback, the latter having accelerated its fall since the beginning of November (-4.5%) anticipating an economic recovery in 2021.

The U.S. Federal Reserve contributed to the dollar’s further bout of weakness, announcing Wednesday that it would continue its massive asset purchases at their current pace until the U.S. economy fully recovers from the coronavirus crisis. Fed President Jerome Powell has not ruled out further increasing support for the economy if the situation remains.

For its part, the European Central Bank (ECB), at its last monetary policy meeting on 10 December, had signaled that it was closely monitoring the level of the Euro, whose strength threatens to dampen the competitiveness of European exporting companies and contributes to depressing inflation in the Euro Zone. The ECB has sharply increased the amount of its Pandemic Emergency Procurement Program (PEPP) from 1,350 billion euros to 1,850 billion euros, by 500 billion euros, but this has not had a bearish effect on the European currency.

ECB President Christine Lagarde said the European Central Bank was closely monitoring the currency’s developments. “We are monitoring exchange rate developments very carefully,” she said after a meeting of the Governing Council. “We will also continue to monitor exchange rate developments in terms of its possible implications for medium-term inflation forecasts.”

Leave a Comment

Your email address will not be published. Required fields are marked *