USD Languishes near 3Year Lows as Fed Stokes Reflation Bets

The safehaven U.S. dollar languished near threeyear lows versus riskier currencies on Thursday as continued dovish signals from the Federal Reserve stoked reflation bets.

The greenback sank to fresh lows against the Australian and Canadian dollars, and held near lows set overnight against its British and New Zealand peers.

Fed Chair Jerome Powell reiterated on Wednesday that the central bank wouldnt adjust policy until the economy is clearly improving, and will look through any nearterm spike in inflation. The remarks to the House of Representatives Committee on Financial Services mirrored his testimony before the Senate the day before.

Powell made it very clear that the improvement in the economic outlook thus far will not instigate the Fed to tighten monetary policy, National Australia Bank foreign exchange strategist Rodrigo Catril wrote in a client note.

The punchbowl aint going anywhere anytime soon and the policy backdrop should remain supportive for risk assets for some time.

Easy financial conditions, the promise of fiscal stimulus and an accelerating COVID19 vaccine rollout have driven money into whats known as the reflation trade, referring to bets on an upswing in economic activity and prices.

Commoditylinked currencies are placed to benefit from a pickup in global trade, while investors have also cheered Britains progress in recovering from the coronavirus pandemic.

The dollar will probably weaken over time as economies pick up and the reflation trade…

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