U.S. dollar recovered after the Fed’s dire predictions

The U.S. dollar climbed up on Thursday from a three-month low, which it hit in Wednesday’s session. The greenback declined after the optimistic mood on the markets bolstered the risk-off currencies. However, after a U.S. central bank policy meeting expectations that the global economy will recover in a short time from the pandemic took a beating.

The Federal Reserve spoke about its plans to offer extraordinary support to the U.S. economy in the coming years. Policymakers are projecting that it will lower by 6.5% in 2020. The unemployment rate will probably be 9.3% at the end of this year. Analysts expect that Interest rates will remain near zero until the end of the next year.

Such dire expectations put a stop on the mounting rally in the stock markets over the previous two weeks. Traders, worried about the more extended recovering period, turned to the safe-haven greenback, the Japanese yen, and the Swiss franc.

As a result, the U.S. dollar climbed up by 0.2% to 96.3 against a basket of its rivals, rebounding from a three-month low overnight as Asian stocks lowered and U.S. stock futures dropped by more than 1%.

Furthermore, there was an increase in new coronavirus infections in the United States after five weeks of declines. That also dampened optimistic sentiment. Marshall Gittler, Head of Investment Research at BDSwiss Group, stated that the risk of a second wave outweighed the Fed’s zero forever message. And the FX market took a distinctly risk-off mood, which is a typical reaction.

What about the risk-off currencies?

Risk-off currencies, such as the Australian dollar and the Norwegian crown, suffered more losses after the recent rally, falling by 1% in early London trading.

According to Rodrigo Catril, FX analyst at National Australia Bank in Sydney, that’s been the follow-through. And it’s played into a broad rebound in the greenback.

Meanwhile, the Euro managed to retain most of its gains, falling by only 0.2%. It left the possibility open for more downside for the U.S. dollar. The Euro last traded at $1.1355.