Dollar drops to 3-month low after Fed's dovish hold

Market Review - 10/06/2020  23:41GMT  

Dollar drops to 3-month low after Fed's dovish hold

The greenback fell across the board on Wednesday on continued risk-on sentiment as countries are gradually lifting restrictions from coronavirus pandemic together with another round of selloff in U.S. Treasury yields and weakness in the Dow. The dollar later weakened to 3-month low after Fed's dovish hold.  
  
Reuters reported the U.S. Federal Reserve on Wednesday signaled it plans years of extraordinary support for an economy facing a torturous slog back from the coronavirus pandemic, with policymakers projecting the economy to shrink 6.5% in 2020 and the unemployment rate to be 9.3% at year's end.  
  
Powell, acknowledging the nationwide demonstrations in his opening remarks at a news briefing, said it was now the Fed's single-minded mission to bring the job market back to where it was at the end of last year, with the unemployment rate at a record low 3.5% and wage gains accumulating for some of the very same lower-paid workers in the service sector that have suffered most during the recent collapse.    “Twenty-two, 24 million people - somehow as a country we have to get them back to work," Powell said via video link after the end of the Fed's latest two-day policy meeting. "They did not do anything wrong. This was a natural disaster."    "It is a long road. It is going to take some time," he said. "We can use our tools to support the labor market and the economy and we can use them until we fully recover."  
  
On the data front, Reuters reported the Labor Department said on Wednesday its consumer price index dipped 0.1% last month after plunging 0.8% in April, which was the largest decline since December 2008. In the 12 months through May, the CPI gained 0.1% after climbing 0.3% in April.   Economists polled by Reuters had forecast the CPI unchanged in May and gaining 0.2% year-on-year.   
  
Versus the Japanese yen, dollar extended this week's decline and fell from 107.87 at Asian open to 107.28 in Europe due to fall in U.S. Treasury yields and usd's weakness. The pair then ratcheted lower to a 3-week low of 106.99 in post-FOMC.  
  
The single currency found renewed buying at 1.1332 ahead of Asian open and gained to 1.1369 in Asia, then to 1.1375 in European morning on usd's broad-based weakness before retreating to 1.1349. However the pair then rallied to 1.1389 and then weakened to 1.1343 in New York on profit-taking. Price briefly dropped to 1.1323 before spiking to a 3-month high at 1.1422 after Fed's dovish hold.  
  
The British pound went through a volatile session. Cable found renewed buying at 1.2707 shortly after Asian open and rose in tandem with euro to 1.2785 in European morning before retreating to 1.2785 in European morning on profit-taking. However, the pair then rallied to 1.2803 and then weakened again to 1.2722 in New York before spiking to a fresh near 3-month high at 1.2812 but price quickly retreated on profit taking.   
  
Reuters reported Britain is seeking a trade relationship with the European Union that is very close to that of an EU member, something that is unacceptable to the bloc, the EU's Brexit negotiator Michel Barnier said on Wednesday.      
In other news, Reuters reported European Central Bank board member Isabel Schnabel played down an imminent expansion of the ECB's crisis-fighting tools on Wednesday, pouring cold water on the notion of buying bonds issued by banks or by junk-rated companies.   
  
Data to be released on Thursday :  
  
New Zealand retail sales, UK RICS housing price balance, France non-farm payrolls, Italy industrial output, and U.S. initial jobless claims, continued jobless claims, PPI, core PPI.