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Dollar Sluggish as Clocks Tick Down to Powell

ForexAug 25, 2020 02:38PM ET
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© Reuters.

By Yasin Ebrahim

Investing.com – The dollar eased on Tuesday, as a fall in consumer confidence stoked investor worries about the pace of the recovery and offset data showing a decline in the number of new U.S. infections.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.22% to 93.88.

The dollar's struggles come in the wake of economic data suggesting the strength of the U.S. consumer, the backbone of the economy, could be on the wane.

The Conference Board’s consumer confidence gauge unexpectedly fell to 84.8 this month from 91.7 in July, missing economists’ forecast for a reading of 93.

While the drop is not expected to affect consumption in the third quarter, some warned of a threat to growth in the final quarter of the year.

"The drop in confidence and household cash flows will not prevent a huge increase in Q3 consumption, because the base effect created by the plunge in March and April and the subsequent rebound is enormously powerful, but it does threaten Q4," Pantheon Macroeconomics said.

The sluggish day for the greenback comes in the wake of declining coronavirus cases in the U.S. from a peak seen a just weeks ago, which many had attributed, in part, to the weakness in the world's reserve currency.

"Since the end of July, the number of cases in the U.S. are showing a significant downward trend. Recently, however, the rate of infection - average new infections per 100,000 inhabitants in the last 7 days - remained constant at around 13, " Commerzbank (DE:CBKG) said.

The greenback will come under added focus later this week on Thursday, when Federal Reserve Chairman Jerome Powell is slated to present the results of the central bank's review of its monetary policy strategy in a speech at the Fed's virtual conference. Normally, this conference is held annually in Jackson Hole, Wyoming.

The central bank launched the review nearly two years ago in an effort to meet its policy objectives more effectively, with the sluggish pace of inflation a key concern among policymakers.

Average inflation targeting, which would allow rates to run above the central bank’s 2% target, has been at the heart of the Fed’s policy framework review, with the central bank widely expected to adopt a form of average inflation targeting at the September meeting. The move would see the Fed loosen the reins on its 2% inflation target, which was established in the 1980s in an effort to pursue clearer policy objectives.

Overall, many expect the Fed chief to lean dovish and reiterate support for an ongoing expansion of monetary policy to ensure the economic recovery remains on track.

Dollar Sluggish as Clocks Tick Down to Powell
 

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Robert DZ the patterns
Robert DZ the patterns Aug 25, 2020 3:58PM ET
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good, I bought calls today
 
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