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What Did Fed Do To Make U.S. Dollar Pop?

By Kathy LienForexJan 27, 2021 04:38PM ET
www.investing.com/analysis/what-did-fed-do-to-make-us-dollar-pop-200557282
What Did Fed Do To Make U.S. Dollar Pop?
By Kathy Lien   |  Jan 27, 2021 04:38PM ET
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With the Federal Reserve holding its first monetary policy meeting of the year, it would be easy to attribute today’s U.S. dollar rally to the central bank’s comments.

However, nothing in Fed Chairman Jerome Powell’s question-and-answer session warranted today’s spike in the dollar and losses in equities. A rally like the one we saw today in the greenback would normally be fuelled by hawkish commentary.

Instead, the changes to the FOMC statement were slightly more dovish: The central bank acknowledged the moderation in activity and employment in areas hit the hardest by the pandemic and predicted modest inflation this year. This cautious outlook explains why Powell thinks it's “too early to focus on tapering dates.” He said they are still a long way from meeting inflation and employment goals, so when it's time to “gradually” taper, they’ll let us know well in advance. By avoiding any specific timeframe on taper, today’s comments should have driven the dollar lower, not higher.

So why did the greenback pop? The answer is stocks.

The Dow Jones Industrial Average dropped more than 2% to a three-month low on concerns that speculators could be met by regulators. It was FOMC day but no one can stop talking about GameStop (NYSE:GME) and the short squeezes driven by Reddit and WallStreetBets. Some investors are worried that massive losses by hedge funds could force liquidation of other investments.

In fact, unwinding risky bets is one of the main reasons why the U.S. dollar was driven higher today. If tomorrow’s U.S. fourth quarter GDP report misses expectations, the slide could accelerate quickly. In times like this it is important to remember that corrections are always faster and more aggressive than rallies. With retail sales falling every month in Q4, the risk is to the downside for tomorrow’s report. USD/JPY is vulnerable to a correction, but a U.S. dollar rally will be felt the most against high-beta currencies. EUR/USD, AUD/USD and USD/NZD are at the greatest risk for losses.

Stronger-than-expected Australian inflation data and Chinese industrial profits failed to help AUD and NZD, the day’s worst performers. While the fundamentals for both countries are strong and virus cases are low, these currencies enjoyed strong gains in 2020 and were the most vulnerable to a correction. NZD’s losses could accelerate if tonight’s trade data surprises to the downside.

German inflation data is also due for release tomorrow. Although price pressures are expected to increase, inflation is so low that any uptick will be ignored. EUR/USD slipped to 1.21 before FOMC but, between the market’s appetite for U.S. dollars and some concerns about the currency’s appreciation from ECB officials, the next stop for the currency could be 1.20.

What Did Fed Do To Make U.S. Dollar Pop?
 

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What Did Fed Do To Make U.S. Dollar Pop?

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Comments (17)
Mitchski Love
Mitchski Love Jan 29, 2021 1:45AM ET
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Sounds like market manipulation to me
ATUL BARIDE
SecondWise Jan 28, 2021 3:39PM ET
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King Dollar is under malfunction
PPN Namibia
PPN Namibia Jan 28, 2021 8:12AM ET
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hah! I get profit
Zain Butt
Zain Butt Jan 27, 2021 11:23PM ET
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Kathy lien u didn't tell us about Stimulus Package which will be approved soon coz republican has majority in senate that will send eurusd up...
The Chad Bull
The Chad Bull Jan 27, 2021 9:33PM ET
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Kathy why didn’t you text me back
Vincent Li
Vincent Li Jan 27, 2021 7:38PM ET
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Kathy.. Be more predictor. Commenting on the obvious
Dwight Agriel
Dwight Agriel Jan 27, 2021 6:41PM ET
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Based on Marco analysis. The dollar rise started in the late hours yesterday based on the currency war triggered by the euro (ECB) . Lastly you didn't mention china's major unwind in equities today. What are your opinions on a massive shortage in liquidity or margin calls?
Rafael dos Santos
Rafael dos Santos Jan 27, 2021 6:34PM ET
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Amazing articles. I was looking for the reasons.
Bulent Ok
Bulent Ok Jan 27, 2021 6:30PM ET
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Greenback vs Gbp? Any ideas?
Keith Bartlett
Keith Bartlett Jan 27, 2021 6:30PM ET
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There will be no more GDP as Biden kills jobs and ships manufacturing to China.
Airem Smith
Airem Smith Jan 27, 2021 6:30PM ET
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GBP, (great british pound)....and I recommend going long as the stimulus package should be coming from my understanding
Ja Ko
Ja Ko Jan 27, 2021 6:30PM ET
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Airem Smith not delayed till March?
Lattanya Morgan
Lattanya Morgan Jan 27, 2021 6:25PM ET
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I want to know more about this someone talk to mi plz am interested in investing
Luis Angulo
Luis Angulo Jan 27, 2021 6:09PM ET
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💵🤑💵🤑 Printing can not do the inflation!! Just give it time!
Mehdi Captain Music
Mehdi Captain Music Jan 27, 2021 6:09PM ET
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Watch it for 1.9k not for Biden's 1.9 trillion
Mehdi Captain Music
Mehdi Captain Music Jan 27, 2021 5:56PM ET
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Nothing just deceiving investors to change their trading positions in the direction of trend.
SunilKumar Dixit
SunilKumarDixit Jan 27, 2021 5:56PM ET
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This is a real conspiracy
Mehdi Captain Music
Mehdi Captain Music Jan 27, 2021 5:56PM ET
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SunilKumar Dixit you know deeply
Ram Abhi Teja
abhieteja Jan 27, 2021 5:56PM ET
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Haha, that’s part of the game lol. Welcome to world of liquidity hunting.
James Pattison
James Pattison Jan 27, 2021 5:41PM ET
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Deflation....
Brady Zimmer
Brady Zimmer Jan 27, 2021 5:40PM ET
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Better get use to stocks red, dollar green....
Charlie Tee
Charlie Tee Jan 27, 2021 5:34PM ET
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Finally!!!
Sean OLeary
Sean OLeary Jan 27, 2021 5:33PM ET
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“Modest inflation” of dollar sureee
Brian Weiss
Brian Weiss Jan 27, 2021 4:41PM ET
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Yay german banks
Dennis Lester
Dennis Lester Jan 27, 2021 4:41PM ET
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Says a German. Ha.
 
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