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U.S dollar faces headwinds in a U.S Fed dovish stance

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Adesina Olumide
·2 min read
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The greenback began the first trading session of the week on a strong footing but remained close to its yearly lows thanks to the plunging value in U.S. Treasury yields.

At the time of writing this report, the U.S Dollar Index that gauges the greenback’s strength against a basket of major currencies ticked up by 0.13% to trade at 92.278 index points at the early hours of London’s trading session.

The stronger U.S dollar has also taken the heat on commodities and certain global stock markets, although, as ever, there were localized exceptions.

Still, dollar bulls seem to be suffering from exhaustion as anchored in today’s price action after the world’s most powerful apex bank indicated there was no cause for alarm in regards to the prevailing inflation rate seen in the U.S economy.

US Fed Chair Powell’s most recent dovish stance has also boosted global investors’ appetite for riskier assets in the broader term as he commented that they were no rush in changing the status quo.

Dollar bears in the mid-term will take the opportunity of the dark cloud cover building above the U.S dollar index (DXY) with such a dovish narrative helping tame rising U.S Treasury yields to US dollar bulls’ detriment.

However, ruling out the dollar bulls could come at a cost, with the world’s most powerful economy firing up at all cylinders, higher inflation reading possibly over a period of time could distort such assurances from the U.S Federal Reserve Bank.

Though market experts argue such change is unlikely meaning, the hurdle is high for USD bulls in breaking above 100 index points (52 weeks high) in 2021.

With inflation remaining transitory driven, it means that the tightening of America’s monetary supply before year-end will not likely take place thereby keeping US yields consolidating between 1.6-1.8%, expect a change in the narrative comes into effect.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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