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Dollar Retreats After Fed Package; Sterling Strengthens

By Peter Nurse

Investing.com - The U.S. dollar has retreated Tuesday, weighed down by the latest hefty rescue package from the U.S. Federal Reserve, at least for now.

At 03:55 ET (0755 GMT), EUR/USD traded at 1.0833, up 1%. The U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 102.090, down 1.1%, while USD/JPY fell 0.6% to 110.50.

The Federal Reserve on Monday announced unprecedented measures to buy unlimited amounts of Treasury bonds and mortgage-backed securities, also pledging programs to finance households, small businesses and employers.

“The Fed just fired its biggest bazooka so far, effectively announcing open-ended and unlimited QE,” said analysts at Nordea, in a research note. “The Fed is now the direct lender of last resort to not only the financial system, but also the real economy.”

Still, losses have been limited given the extent of the actions taken by the U.S. central bank. There still exists a great deal of uncertainty surrounding the impact of the coronavirus outbreak, and with that comes the usual flight to safety and into the U.S. dollar.

“The Fed is doing its best to kill the USD, but we are not convinced that it will work (yet),” added Nordea. “Once economies open up post the Corona-crisis, the USD will get hammered, but that is still not something to discuss for the next weeks.”

One of the currencies which has benefited the most Tuesday has been sterling. This follows the news that  U.K. Prime Minister Boris Johnson has imposed stricter lockdown measures to combat the Covid-19 pandemic. 

The GBP/USD pair was up 1% to 1.1663 by 3:55 AM ET (0755 GMT) after falling to as low as 1.1448 on Monday.  

The pound has been hit recently, and the U.K. government criticized, by the notion that authorities have been slow to implement the tough conditions needed to combat the spread of the virus. 

However, Johnson announced late Monday the government would impose new restrictions, including limiting the gathering of more than two people in public, for at least three weeks.  

 

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