Dollar drops as stocks surge, Fed keeps policy unchanged
The U.S. dollar fell to a two-week low against a basket of currencies and a seven-month low against the Japanese yen as surging stock markets reduced demand for the greenback, and as the Federal Reserve kept its loose monetary policy intact.
Stocks jumped as bets on Republicans retaining control of the Senate eased worries of major policy changes that could hurt corporate America under a Joe Biden White House, even as the presidential election hung in the balance.
Democrat Biden on Thursday inched nearer to victory over President Donald Trump in an exceedingly close U.S. election that hinged on razor-thin margins, while the Republican president launched a flurry of lawsuits hoping to slow down his opponent.
The dollar index fell 0.95% against a basket of currencies to 92.51.
The euro jumped 0.99% to $1.1838. The dollar dropped 0.95% against the Japanese yen to 103.49 yen, the lowest since March 12, and breached technical support at 104 yen that will now likely form resistance.
The yuan gained to a more than two-year high of 6.5994. The Chinese currency has been heavily affected by Sino-U.S. disputes since the outbreak of a bilateral trade war in 2018.
The dollar has been hurt by the Fed’s zero rate policy and ongoing bond purchases as the U.S. central bank aims to stimulate growth after the economy was ravaged by business shutdowns due to COVID-19.
The U.S. central bank on Thursday pledged again to do whatever it can in coming months to sustain a U.S. economic recovery.
Some analysts say the Fed may need to act further to boost the economy if there is no large fiscal spending, though others note that it is running out of tools.
If Treasury yields rise meaningfully the Fed is expected to shift more of its bond purchases to longer-dated debt to keep the rates low.
Reference: CNBC
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