FINAM FOREX: Dollar weakened after Fed comments on continued soft monetary policy


06 May 2021

Andrey Maslov, analyst of the FINAM Group of Companies

On Thursday, May 6, EUR / USD rallied 0.32% to reach 1.2043. The day before, the American currency was strengthening mainly due to strong macroeconomic data. On Thursday, the dollar weakened after the Fed’s comments on the advisability of keeping the soft monetary policy unchanged for now, despite strong economic data and a temporary acceleration in inflation. The DXY dollar index is down 0.19% to trade at 91.13.

So far, Fed Chairman Jerome Powell has argued that employment in the labor market is far from where it should be to start talking about a reduction in asset purchases. With the release of strong April unemployment data, investors are awaiting a possible signal from the regulator in the coming months to prepare for a gradual normalization of monetary policy.

Several Fed officials spoke yesterday, with Chicago Fed President Charles Evans said that while he is more optimistic about U.S. growth than a few months ago, he expects monetary policy to remain soft for some time and inflation is unlikely to get out of hand. Boston Fed President Eric Rosengren said inflation will be temporarily overstated this spring as the US economy is in an imbalance caused by the pandemic, but inflationary pressures should be short-lived and will not change the monetary policy. Cleveland Fed President Loretta Mester said more progress in the labor market would be required before the Fed’s terms to cut asset purchases are met. In general, all three representatives confirmed the main line of the central bank, that at the moment there are no plans not only to raise rates, but also to discuss a reduction in QE volumes.

As for macroeconomic statistics, the US yesterday announced the final data on the index of business activity in the services sector from Markit for April, which amounted to 64.7 points, exceeding the March result of 60.4 points and preliminary results of 63.1 points. The index of business activity in the non-manufacturing sector from ISM for April amounted to 62.7 points, which was slightly lower than the result for the previous period of 63.7 points and analysts’ forecasts of 64.3 points. In addition, the change in amusement from ADP has become known. So, in April it amounted to 742 thousand people against 565 thousand people in March and forecasts from analysts at 800 thousand people, the number of new jobs in the US private sector reached a maximum in 7 months.

In Germany, data on the volume of factory orders for March came out today, which increased by 3% (m / m) compared with an increase of 1.4% (m / m) in February and a growth forecast of 1.7% (m / m) … The index of business activity in the construction sector in April amounted to 46.2 points, which is lower than the March result of 47.5 points.

Today we should pay attention to the publication in the US of data on initial claims for unemployment benefits for the week and preliminary data on labor costs per unit of production for the first quarter. In the eurozone to publish data on retail sales for March.

EUR / USD is holding above the 1.2000 support line and trading at 1.2037. Stochastic lines are approaching the oversold zone, which indicates a limited downside potential for the instrument in the short term.

This information is not investment advice.

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