Fed committed to supporting economic recovery as the dollar is rising

U.S. dollar edged higher

The U.S. dollar edged higher against a basket of currencies in a volatile session on Wednesday after minutes from the Federal Reserve’s March meeting showed the central bank commits to extending monetary policy support until the economic recovery is more stable.

Even as the U.S. economy gained momentum this year, Federal Reserve officials remained concerned about the pandemic’s ongoing threats and committed to pouring on monetary policy support until the recovery was more secure, the minutes showed.

“The minutes again indicated that the Fed thought it would be “some time” before officials see the necessary condition of “substantial further progress” on the dual goals on employment and inflation,” Ronald Simpson, managing director, global currency analysis at Action Economics, said in a note.

The dollar currency index fell 0.181% to 92.473. Earlier in the session, the index hit a low of 92.134.

The dollar has risen along with Treasury yields this year as investors bet that the United States, with the help of massive fiscal and monetary stimulus, will recover faster from the COVID-19 pandemic than other developed countries.

However, analysts said the dollar index rose 2.5% in March, its biggest monthly gain since late 2016, prompting some traders to book in profits. The dollar was also placed under pressure by Treasury yields’ weakness following their rapid rise this year.

All this has investors wondering whether the dollar’s weakness will return. The dollar had fallen to a near three-year low earlier this year.

Damon Harrison
Market Analyst, IPG Group