The positivity of the stimulus conversation sinks the dollar
The growing likelihood that Congress approve President Joe Biden’s $ 1.9 trillion stimulus plan fueled fears about a possible increase in inflation. As those expectations increased, so did the popularity of the so-called reflective trade, which this month pulled the dollar down.
But, in testimony to the U.S. Senate Banking Committee, Powell said the central bank will keep its policies in place while focusing attention on getting Americans back to work.
“The economy is a long way from our employment and inflation targets, and it is likely to take some time for substantial progress to be achieved,” said Powell.
Powell in 2020 said the central bank would be willing to allow inflation to exceed its target for periods of time on average 2%.
Although Powell did not dispel fears of inflation, the central bank’s general support for the economy may have kept the dollar afloat on Tuesday.
“For the dollar, the jury remains in relation to which direction the next big move will be, although for now, Inflation concerns can be outweighed by hopes of a faster US economic recovery, as vaccine distribution is expected to increase in the coming weeks, “said Ronald Simpson, managing director of global monetary analysis at Action Economics.