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Dollar Up Following Fed’s Dreary Outlook

The dollar pushed higher in early European forex trading on Thursday. Investors were willing to head back towards the greenback following the Federal Reserve’s dreary economic outlook.

The dollar index rose by 0.4% at 96.318. USD/JPY traded largely unchanged at 107.09, but GBP/USD fell by 0.7% to 1.2656.

The U.S. central bank projected on late Wednesday that the U.S. economy would shrink by 6.5% this year. The unemployment rate would likely be 9.3% at year’s end.

That was a gloomier view than many in the forex exchange market had expected. Particularly after Friday’s shock employment report. This sent investors out of the stocks and away from riskier currencies. This gloomy view also sent investors towards bonds and the safe-haven.

The Australian dollar retreated from an overnight 11-month high, falling by 1% to $0.6929. The New Zealand dollar gave up a four-and-a-half month high and dropped by 0.7% to $0.6493. 

The Federal Reserve indicated that its loose monetary policy will stay for the long haul. The strength of this currency is likely to be a temporary phenomenon.

ING said, in a note, that the broad trade-weighted currency is within a whisker of a return to the mid-March lows. That was right before the USD funding markets seized up and dollar hoarding developed.

Investors are jumping on the view that the FOMC median expectation was according to the unchanged Fed rates through 2022. It would maintain demands for higher-yielding assets.

The Euro, U.S. Dollar Pairing

The euro, U.S. dollar (EUR/USD) dropped by 0.1% to 1.1358, registering small losses after a three-month peak.

The single currency has been boosted by signs of the continent’s countries working together to combat coronavirus. That is after the EU’s executive Commission proposing a hefty recovery fund. This fund includes grants and loans for every EU member state.

The Eurogroup will meet on Thursday for a discussion on the EU recovery fund. This is a grouping of E.U. finance ministers.

Analysts at Danske Bank wrote, in a research note, that the proposal for the recovery fund needs some work. This is before it can be passed in the various parliaments. Given the differences between the EU commission and for example, the Netherlands and Austria, the necessity is understandable.

Meanwhile, in forex news, the dollar was ¥107 lower in Tokyo forex trading on late Thursday. It weighed down by a drop in U.S. long-term interest rates and selling on a rally.

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