The dollar dropped by 0.2% to 99.73 against the basket of currencies on Wednesday. It almost reached two-week lows against its rivals while the high-yielding currencies soared as the governments are partially lifting coronavirus lockdowns.
Currency markets have been in wait-and-watch mode lately as traders lookout for the results of a U.S. Federal Reserve meeting later today. Meanwhile, policymakers promise to do whatever it takes to support the world’s largest economy.
The dollar has lowered by more than 3.5% after climbing a more than a three-year peak of 102.99 in late March. Central banks launched massive stimulus measures worldwide to protect economies from the novel coronavirus pandemic, causing the currency’s rally.
Lee Hardman, the currency analyst at MUFG, stated that policy response from the Fed has been very aggressive. He thinks that the Fed will continue to keep the money taps on to reduce the risk in financial markets.
Furthermore, analysts are expecting the U.S. economy to expand by 3.8% in 2021. They are currently focusing on the extent of recovery in the coming months. At 1230 GMT the U.S. quarterly GDP numbers will be released, and according to reports, consensus forecasts for a contraction is around 4%.
Investors are encouraged by the plans of easing lockdown measures in Spain and France and other European countries – noted Hardman. It looks like markets will see a pick up in activity towards the end of the second quarter.
Central banks’ unprecedented response has calmed nerves in forex markets. However, the Deutsche Bank index of currency volatility sharply retreated from its highs in March.
What about the Euro?
The euro edged up by 0.3% to $1.08545. Traders are waiting for the outcome of the European Central Bank meeting on Thursday.
The Australian dollar also gained against the greenback, rising by 0.4% at $0.65200. The senior market analyst at JFD Group, Charalambos Pissouros, stated that the weakening of the greenback, as well as the strengthening of the commodity-linked currencies, suggesting that risk appetite may have stayed supported for another day.