FOMC November minutes disclose priority given to asset purchase program. Another fiscal stimulus is needed, says Powell, which may drag the US Dollar lower.
FOMC Minutes Lower US Dollar
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FOMC minutes show that members were focused on asset purchases and its bond-buying program. Asset purchases are insurance against forthcoming risks, says Fed officials. FOMC minutes say that guidance may be enhanced towards asset purchases.
The FOMC members believe that there is much progress in the general economic conditions, but there is a long way to go, to get back to pre-Covid levels.
Borrowing costs will remain lower during this Covid-19 recession time to pull up the economy, says the Fed. However, with the rebound in Covid cases, the economy is trailing in some sectors, despite huge fiscal spending. With rapid Covid-19 cases increasing in the United States and the European Union, further fiscal spending will be required.
Three vaccines are in the late-trial stage, but it will be sometime before people are vaccinated, and the economy is pulled back to normal. With increasing Covid cases, lack of further fiscal support may affect common households, especially the low and middle-income families, where savings are already exhausted, says Fed Chairman Powell. More fiscal spending is expected by investors.
US Dollar Undeterred by FOMC Minutes
The US Dollar has weakened against the Euro, the British Pound, and the New Zealand Dollar. The demand for safe-haven assets like gold and the US Dollar are decreasing. The USD is under selling pressure. There is downward momentum as the US Dollar has broken below strong support at 92.00 levels.
Initial jobless claims may add pressure on the Fed to bring in a new fiscal stimulus package. The fed has played an important role in keeping the financial sector stable and to bring back market confidence. Stimulus packages from the fed have brought in several lending facilities that benefit the financial markets, say experts.
US Dollar closed at 91.80 on Friday, 27 November. The US Dollar Index slid more than 0.6% this week. Breaking many support levels, the US Dollar is moving towards the 2017 lows below 90 levels. The USD has to move towards the 93 levels to wipe away its bearish stance.
GBP/USD Moves Lower to 1.33
British Prime Minister Boris Johnson has said he would not ask for more time for negotiations on the post-Brexit deal. The current transition period ends on 31 December. EU Chief Negotiator Michel Barnier says talks continue from both sides, and there is still hope for a deal to be made.
GDP/USD reacted positively to the FOMC news, moving towards the 1.34 level on Thursday. The Brexit news and lower Covid-19 cases will direct the Sterling in the days to come. The GBP/USD closed at 1.3314 on Friday, 27 November.
EUR/USD Close to August Highs
The Euro did not react much to the FOMC minutes. The asset purchase program was the main focus on which investors paid attention. Bond-buying guidance was opted for by most members. The ECB may expand the PEPP and TLTRO in December, as there is favorable news coming from the Covid-19 vaccines. However, the ECB may not over-deliver its stimulus schemes in December, as was earlier expected.
The EUR/USD is just below the 2-year high at 1.2012, which it touched in August. The Euro against the US Dollar closed at 1.1962 on Friday, 27 November. The Euro is gaining from the US Dollar weakness.
Trade Ties between Australia and China Deteriorate
Trade relations between Australia and China are not very sound. The Chinese Ministry of Commerce says that Australian import of wine is destroying domestic wine producer’s income. China may hit double or trouble tariffs on Australian wine, which is a setback for Australia. It is China’s way of hitting out at Australia for making a call on Covid-19 independent investigation. The weakening US Dollar is driving the AUD/USD pair higher.
However, AUD/USD continued to move to Nov highs on Friday at 0.7386. The currency pair is showing signs of a positive uptrend as it shot up to Sep high levels of 0.7400.
US Dollar Depreciates Against the Yen
The US Dollar has weakened against many major currencies, including the Japanese Yen. The USD/JPY pair is trading lower since June. After moving to 103.00 levels in the first week of November, the currency pair closed at 104.10 on Friday, 17 November. The US Dollar is unable to pull the Japanese Yen above the 105.00 levels.
Gold Prices Below $1,800
Gold slid below its $1,800 support level on Friday, for the first time after 16 July. It is the biggest weekly decline. In August, it reached a record high of $2,075. Gold, which is considered a safe-haven asset, is losing its sheen, which also means that there is a global economic recovery. However, gold needs to move above $1,800 levels to maintain its uptrend. Coronavirus vaccine from three companies has weakened the value of gold.
The correction may be short-lived if the Federal Reserve announces additional monetary stimulus in the US. Gold prices have fallen 8% from the November highs. Growth-related investments are preferred when the economy becomes positive, pulling the value of gold downward.