By Early afternoon on Thursday, the dollar index was trading below the 90 level for the first time since April 20, 2018, according to Reuters.
At the same time, gold and oil exchanges are on the rise, with spot gold briefly breaking the $1,880 barrier and silver gaining more than 2 percent in early European trading. Before the United States market, gold and silver again pull up, spot gold once again to 1880 dollars pass.
What caused the shift in sentiment?
First, the “horror data” released on Wednesday night was disappointing, plunging back into negative territory after a seven-month interval. The monthly retail sales rate, commonly known as the “terror data”, has been an important data for the market, providing a glimpse of the health of the RETAIL economy in the United States.
According to the Wall Street Journal:
“In recent weeks, consumers have cut back on holiday shopping because of new business restrictions triggered by the outbreak, which could put an end to six straight months of retail sales growth.”
That’s a damper on the U.S. economy, mainly because the end of the year is always a holiday shopping spree for Americans, and retailers depend on it for a big chunk of their annual sales.
On the other hand, while the Fed’s policy statement was less dovish than expected, Mr Powell’s comments fuelled bullish sentiment.
The Fed stopped short of directly changing the size of its QE purchases this time, but said it would continue to buy at least $120 billion of bonds a month until it made substantial progress toward its dual goals of full employment and price stability, instead of the “next few months.” That’s a big change in the FOMC statement, but some analysts say it just adds another kind of open-ended ambiguity to the framework.
Powell said after the statement that the Fed would continue to increase its holdings of Treasury securities, could expand its program of purchases to further support the economy and would provide guidance before taking any real action to scale back its purchases. So dollar bears see a glimmer of hope.
The positive developments in the stimulus bill have also fueled optimism and put pressure on the dollar.
On Thursday night, Democratic Senator Aine said a deal on the stimulus package was “pretty much” done.
Market expectations for a deal are high, but note that the U.S. government is on annual leave from Tuesday until the end of the year, which means the stimulus bill negotiations will end the year at some point by Friday. Failure to pass the bill could hit gold and silver prices.
In addition, the data from other regions are also bright.
Preliminary pmIs for the euro zone, France and Germany all showed unexpected gains, while the UK data also came in better than expected. The key is that a hard Brexit is no longer a highly likely outcome, which has boosted people’s interest in sterling.
A combination of these factors led to a selloff in the dollar and strength in other currencies. Both the euro and sterling hit new highs on Wednesday, with the euro trading down 1.22 against the dollar and the pound trading above 1.35 to 1.3564, its highest level in two-and-a-half years.
Not to be outdone, Bitcoin hit the $22,000 mark in the sub-session, breaking $22,500 by 16pm, up 5.31% on the day.
Non-commercial, asset managers and leveraged funds are all expanding their short positions against the dollar, suggesting a growing “consensus” against the greenback.
With the introduction of the COVID-19 vaccine and a long-awaited US economic rescue package looking increasingly likely, investors are piling into assets — not dollars — that are doing well in a better economic environment. Even if the U.S. starts to work its way out of trouble, the dollar is likely to continue to fall out of favor because overall global risk is now lower, said Barbara Rockefeller, an analyst at FXSTREET.
So far, the dollar has fallen nearly 4 percent in the fourth quarter, its worst quarterly performance since a 6.4 percent drop in the fourth quarter of 2003, and the decline is unlikely to slow any time soon.
Economists say the economic outlook has brightened considerably as the vaccine has begun to become available, while the outlook for the dollar has weakened. Goldman’s team of analysts, led by Zach Pandl, wrote in a forecast for 2021 last month:
“Even if the US economy does well, a rapid global recovery should put pressure on the ‘safe haven’ dollar. Strong global growth tends to boost the currencies of commodity exporters, emerging markets and economies most closely linked to global trade, and can weaken the dollar.”
Barbara Rockefeller said the dollar is unlikely to rebound until U.S. economic data is strong enough for the Federal Reserve to start talking tough. The data could be a recovery in employment or PMI, which most analysts don’t expect to happen until the end of 2021 or the first half of 2022.
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