The U.S. dollar traded near nine-weeks low on Thursday, due to a dovish outlook from the country’s central bank and bold spending plans from the White House. Both factors mentioned above gave a green light for the global reflation trade.
President Joe Biden’s push for another $1.8 trillion in spending also created a risk of expanding the U.S. budget and trade deficits. This is not good news for the U.S. dollar.
The euro benefited from the situation and reached its highest level since late February at $1.2150, before steadying at $1.2126.
Against a basket of currencies, the greenback fell to a nine-week low of 90.606.
Fed Chairman Jerome Powell overruled speculation about an early tapering of asset buying. He stated that the employment was still far short of the target.
The front-end U.S. real rates are already thoroughly negative and they are set to fall further as U.S. CPI rises sharply this quarter. This is likely to be a dollar negative, especially when other parts of the world are set to an economic rebound in the coming months.
Even the outperformance of the U.S. economy was an issue for the dollar, as it sucked in imports. It caused the trade deficit to reach record highs in March.
It could also soften any reaction to an upbeat U.S. GDP report. The report regarding the first quarter is due later on April 29. The closely watched Atlanta Fed ‘s “GDP Now” estimate is that GDP grew by 7.9%.
Dollar, Canadian counterpart, and crown
The Bank of Canada already began to diminish its asset buying, and it sent the Canadian dollar to a three-year low against the loonie at C$1.2283.
Another notable break lower came from the other side of the ocean. The greenback fell to the lowest point against the Norwegian crown since October 2018. The Norwegian crown strengthened its position thanks to rising oil prices. The global economic recovery helped to boost the demand for commodities. Apart from the Norwegian crown, that trend also supported the Australian as well as New Zealand dollars.
The dollar also failed to keep much of the week’s gain against the yen. It fell back to 108.86 from Wednesday’s top of 109.07. A holiday in Japan kept it contained in Asian hours, but the greenback reclaimed some ground. It rose to 108.80 yen in early London deals.
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