Policymakers, U.S. Dollar, and Economic Recovery

The dollar dropped on May 20, nevertheless, it remained well-above lows hit overnight after minutes from the Federal Reserve’s latest policy meeting. Interestingly, the minutes showed there was more talk of it tapering its bond than investors expected. In the minutes, several officials said a discussion about reducing the pace of asset purchases would be appropriate at some point in the future. They are ready to discuss that topic in the future if the economic recovery continues to gain momentum.

Their stance surprised markets with some investors unwinding some of their short dollar positions. Investors’ decision helped to boost the dollar as they believed the Fed would not change its position.

Nonetheless, the dollar’s gains fizzed partially in London. The greenback fell against most of its peers. The dollar index fell 0.5% to 90.00. But it remained above a late February low of 89.686.

Dollar and U.S. Treasury yields

The greenback’s overnight bounce coincided with a hike in the U.S. Treasury yields as well as weaker stocks. Federal Reserve’s fund futures pricing for rate changes in late-2022 and early 2023 remain steady from earlier this week.

According to strategists who work for Commerzbank, the Fed minutes might end the recent period of dollar weakness for now. Nonetheless, it is still too early for a trend turnaround.

The greenback started to decline several weeks ago. Key Fed officials repeatedly said they were not ready to discuss cutting stimulus. Their position had a negative impact on the dollar.

Without exaggeration, the biggest beneficiary of the weak dollar trend was the Australian dollar. It also received a boost from robust April jobs data. It added 0.4% to $0.7749.

The euro advanced 0.2% to $1.22 it closed to a three-month high of $1.2245. The single currency fell 0.4% in the previous session.

It is not an easy period for cryptocurrencies, as they suffered one of their biggest losses on May 19. China decided to ban financial as well as payment institutions from providing cryptocurrency services.

Bitcoin last traded up 10% at $40,526, but one day earlier it fell to $30,066, which represented a 54% fall from its record high hit just over a month ago.

Bitcoin’s rival Ether added 13% at $2.765. On May 19, it dropped 22.8%, its biggest daily fall in more than a year.