Dollar weakens after Jerome Powell’s speech


25 February 2021

Andrey Maslov, analyst of the FINAM Group of Companies

On Thursday, February 25, the EUR / USD pair is up 0.12% and is trading near a 1.5-month high at 1.2178. The DXY dollar index is down 0.07% and is at 90.095 on the background of heightened reflationary expectations after the speech of the head of the Fed, Jerome Powell.

The most important event of recent days was the statements of Fed Chairman Jerome Powell in the US Senate, in which he drew attention to the fact that the US economy is recovering unevenly, primarily due to the continuing risks associated with the coronavirus pandemic in the country and the world. Until the economy begins to clearly improve, the central bank will not adjust monetary policy. An important criterion for improvement will be the restoration of employment among the population. In addition, he noted that, despite a possible temporary jump in inflation, the Fed will not raise the rate until it stably exceeds 2%. According to the Fed’s forecasts, this could take more than three years.

In addition, the promise of fiscal stimulus and the accelerated introduction of the Covid-19 vaccine have led investors to continue to turn to reflationary trade, betting on future economic activity and prices.

As for Europe, the euro exchange rate remains quite volatile as the coronavirus pandemic is still having a serious impact on the countries of the Old World. The eurozone, which has already suffered from a delay in the rollout of vaccinations, continues to face uncertainty about how long the pandemic’s impact may last. In turn, vaccine maker AstraZeneca said it will be able to supply about half of the originally projected amount of vaccines in the second quarter.

Also, the ECB last week increased its balance sheet by 22 billion euros (a week earlier growth was 25 billion euros) to a total of 7.101 trillion euros. This was due to the purchase of securities denominated in euros, which increased by 23 billion euros against 26 billion euros a week earlier.

With regard to macroeconomic statistics in the US, sales in the primary housing market in January rose by 4.3% (MoM), which significantly exceeded the forecasts for growth by 2.1% (MoM).

In the eurozone, the final data on the GDP of Germany for the IV quarter were published. On an annualized basis, GDP fell by 3.7% (yoy), which is 0.2 pp better than the initial estimate. On a quarterly basis, GDP grew by 0.3% (q / q), which is 0.1 pp higher than the preliminary data, but significantly below the growth in Q3, which amounted to 8.5% (q / q).

Today in the US, data on orders for durable goods for January, initial applications for unemployment benefits, pending home sales, as well as data on the 2nd estimate of GDP for the IV quarter of the past 2020 will become known.

In the eurozone, the final data on consumer confidence and economic sentiment for February will be published. In addition, the Gfk Consumer Confidence Index for March for Germany will be released.

After breaking through the resistance level at 1.2150, the EUR / USD rate continues to grow gradually and is traded at the level of 1.2179. Stochastic lines are in the overbought zone, which indicates limited upside potential for the instrument in the short term.

This information is not investment advice.

Libertex [CPS] WW

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