US dollar drops across the board as Fed maintains its dovish stance

Vrasidas Neofytou
Head of Investment Research

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The US dollar continues its downward trend, hitting a 4-month low, as the Federal Reserve maintains its stimulatory monetary policy settings even as data on core inflation topped forecasts.

Euro rises back above the 1,22 level against the greenback, getting support from the improved Eurozone’s economic outlook, progress in vaccination campaigns, and the softer dollar.

On the upside, the Euro finds major resistance at the 1,23 level, as the European Central Bank is unlikely to tighten its monetary policy anytime soon. However, breaking above 1,23 could clear the path for the price to re-test 2018’s highs of 1,25.

The pound sterling trades to near multi-year highs of 1,42 to the dollar, as the Bank of England is likely to raise interest rates in 2022, since the British economy is recovering faster than expected from the pandemic.

However, investors have been reluctant to push the pound higher on the back of growing concerns that the economic re-opening could be delayed due to the spread of virus variants.

The growth-sensitive Australian, New Zealand, and Canadian dollars have been the best performing currencies in 2021 after the global economic recovery appears to gain momentum.

The aforementioned currencies are getting support from the rising commodity prices, while their respective central banks have started considering the easing their monetary stimulus.

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