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Powell hinted to the markets that the Fed is not doing anything for nothing. The dollar took this as a good sign, but the outlook for USD



There seems to be an ongoing struggle between reflationary trading and central banks trying to keep market optimism from getting too strong, and under these conditions we can see that the dollar has proved to be more resilient than expected. Currently, the greenback is doing well for several reasons. First, Fed Chairman Jerome Powell’s belief in the US economy and its ability to withstand rising Treasury yields favors the US currency. Second, higher yields in the United States make the dollar more attractive than its main competitors. Third, declines stocks forces investors to seek a safe haven in USD. Investors expected J. Powell’s assurances of his readiness to curb the rise in yields, but did not hear them, which increased the pressure on the markets. As a result, US stock indices fell 1.1-2.1%, and US 10-year government bonds jumped to 1.58%, approaching an annual high of 1.61% hit last week. Banks listen to the opinion of central banks, and if the latter are going to leave things as they are for a long time, this means that long-term inflation will be higher, which is why you are seeing a sell-off in the bond and equity markets, ”strategists at Commonwealth Bank of Australia noted. the fact that there are a lot of short positions on US government securities, there is reason to believe that the downward movement in stocks and upward in bond yields has not yet ended. Over time, yields may grow to such a level that will lead to a collapse of risk sentiment and a strong jump in USD upwards that the Fed will come to the rescue again, this time with control of the yield curve. “We may see Operation Twist again if economic and financial market conditions deteriorate, but there is little sign of such deterioration,” Standard Chartered said. according to experts, the Fed is unlikely to take any steps unless absolutely necessary, since the Central Bank’s doctrine has always been and this is: to do it with minimal effort. And there has been a recent trend that reflects an improved economic outlook for the United States. The Beige Book, published Wednesday night – a summary of the Fed’s comments – showed that in most of the twelve regions of the United States from January to mid- February saw a moderate growth in economic activity. At the same time, the majority of enterprises on the whole are optimistic about the next 6-12 months. Following the comments of J. Powell, the dollar rose sharply. On Friday, the USD index reached a three-month high, rising above 92.1 points. The nearest strong resistance is at 92.45 points (correction of the “bearish” trend of 2020-2021) and further – at 92.90 points (at the level of 200 -day moving average). The breakdown of the last mark will lead to a rise to the highs of November last year near 94.30 points. “Market participants expected a tougher rhetoric from the Fed, which was supposed to put an end to further growth in Treasury yields. However, we didn’t hear that, so the dollar is growing across the board in anticipation of a further rise in US yields, “Mizuho Bank analysts said.” It is possible that real yields in the US will be higher. However, there is a level of profitability that will match the more optimistic outlook for economic growth. If bond yields stabilize for two or three weeks, the market will decide it’s okay to live with. Therefore, we are still pessimistic about the dollar, despite everything that is happening now in the markets, “- said Standard Chartered. Experts admit that in the coming months or even weeks, the USD may begin to decline, which took place after the adoption of the first aid package. the American economy in the middle of last year. The fact is that already this weekend the US authorities may approve a new antiquated plan and dump trillions of dollars on the market. The growth of the money supply in the country promises the weakening of the American currency. Material provided by InstaForex – www.instaforex.com Source – InstaForex

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