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US Dollar Index Surges As Federal Reserve Fails To Calm Markets

January 27, 2021 at 20:32 by Andrew Moran

Some USD bills and US cent coinsThe US dollar is soaring in the middle of the trading week, buoyed by a triple-digit decline in the financial markets. But investors have also been monitoring the Federal Reserve and potential hints as to what to expect from monetary policy moving forward. Housing and durable goods data were also in focus, but traders were more determined to know if they were receiving additional stimulus this year.

On Wednesday, the US central bank completed its two-day Federal Open Market Committee (FOMC) policy meeting where it left interest rates unchanged at 0.25%, signaling that it will continue to provide as much stimulus and relief as necessary. The Fed also maintained its asset-buying program of at least $120 billion per month.

Policymakers agreed that the COVID-19 pandemic continues to cause “tremendous human and economic hardship across the United States and around the world,” adding that the path of the economy will depend significantly on the course of the virus, including progress on vaccinations.”

Fed officials noted that the pace of the economic and labor market recovery has “moderated” in recent months as weakness has been most pronounced in sectors decimated by the public health crisis.

According to Fed Chair Jerome Powell, the state of COVID-19 adds to the broader economic uncertainty. But Powell reassured markets that the Eccles Building will not taper any stimulus efforts, describing such a move as “premature.”

The whole focus on exit is premature if I may say. We’re focused on finishing the job we’re doing, which is supporting the economy, giving the economy the support it needs. Should the economic recovery slump, Powell said the Fed is willing to do more.

This was not enough to satisfy the equities market, with the leading benchmarks in the red at the end of the Wednesday trading session.

On the data front, mortgage applications fell 4.1% in the week ending January 22, down from the 1.9% dip in the previous week, according to the Mortgage Bankers Association (MBA). Durable goods orders rose 0.02% in December for the eighth consecutive month, buoyed primarily by a 2.4% jump in machinery.

The bond market was mostly in the red midweek, with the benchmark 10-year Treasury down 0.015% to 1.025%. The one-year note was unchanged at 0.091%, while the 30-year bond slumped 0.011% to 1.791%.

The US Dollar index, which gauges the greenback against a basket of currencies, surged 0.54% to 90.66, from an opening of 90.15. The DXY has defied market expectations, climbing 0.8% in the first month of the calendar year.

The USD/CAD currency pair soared 0.84% to 1.2804, from an opening of 1.2694, at 19:25 GMT on Wednesday. The EUR/USD tumbled 0.49% to 1.2102, from an opening of 1.2164.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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