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Dollar Cuts Some Losses Despite Fed Extending Currency Swap Lines

Published 07/29/2020, 02:38 PM
Updated 07/29/2020, 03:21 PM
© Reuters.

© Reuters.

By Yasin Ebrahim

Invesitng.com – The dollar cut its losses on Wednesday even as the Federal Reserve left interest rates unchanged and extended its temporary dollar liquidity swap lines.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.23% to 93.47.

The Fed kept its benchmark rate within a 0%-to-0.25% range and pledged to keep rates near zero "until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." 

The central bank announced it would extend its U.S. dollar liquidity swap lines and temporary repo operations through March 31, 2021. After an initial move lower, the dollar cut some of its losses. 

The central bank first rolled out the currency stimulus measures when the Covid-19 pandemic struck in March, amid concerns about strains in global dollar funding markets.

The weakness in the dollar had been well documented heading into the Fed meeting, with many on Wall Street expecting the central bank to reiterate its commitment to keep rates lower for longer – a commitment that has seen the dollar plunge nearly 10% since hitting a peak in March.

The urgency to support the broader market was backed up by Fed Chairman Jerome Powell, who warned that the resurgence in coronavirus cases has hampered the economic outlook.

"We not even thinking about raising rates... the economy will need high levels of accommodative monetary policy for an "extended period," Powell said in a press conference on Wednesday.   

In another sign that monetary policy will continue for a prolonged period, the Fed chief also flagged deflation as more of a risk than inflation over the near term.

The most recent reading of the core PCE price index – the Fed's preferred measure of inflation – stood at about 1%.

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