Dollar holds advantage as Powell quashes negative rates, data in focus
The dollar held onto gains against major currencies on Thursday after U.S. Federal Reserve Chairman Jerome Powell dismissed speculation that policymakers will adopt negative interest rates.
The Australian dollar was under pressure before closely-watched data on the jobs market, which may help determine how much more monetary and fiscal easing is necessary to support the economy.
The focus will shift to economic data from the United States and Europe in the next two days for more clues on the depth of the downturns there, while investors will closely watch China activity gauges for signs on how long it may take to emerge from the sharp shock caused by the coronavirus outbreak.
“The dollar managed to bounce back after Powell’s comments on negative rates, but now the dollar’s bias is fairly neutral,” said the Analyst.
The dollar traded at $1.0818 against the euro on Thursday following a 0.3% gain in the previous session. Against the pound, the greenback was quoted at $1.2238, close to a five-week high. The dollar bought 0.9722 Swiss francs after gaining 0.3% on Wednesday. The greenback was little changed at 106.91 yen.
Powell became the latest in a parade of policymakers to brush off the notion that they might push rates into negative territory after Fed futures began pricing a small chance of sub-zero U.S. rates within the next year.
“The committee’s view on negative rates really has not changed. This is not something that we are looking at,” Powell said on Wednesday, referring to the Fed’s policy-setting Federal Open Market Committee.
Powell spoke in response to a question after offering a sobering assessment of U.S. economic outlook in a closely-watched speech.
The Australian dollar eased slightly to $0.6449 as traders braced for data at 0130 GMT expected to show a large increase in unemployment due to the coronavirus pandemic, which would bolster expectations for further stimulus measures.
Across the Tasman Sea, the New Zealand dollar traded at $0.5991. The kiwi tumbled by more than 1% on Wednesday after the Reserve Bank of New Zealand flagged the possibility of negative interest rates.
New Zealand’s government is expected to present its budget later today, which will offer fiscal stimulus to offset the economic damage caused by the pandemic.
Many investors await China’s release on Friday of data on industrial production, retail sales, and investment to measure how quickly the world’s second-largest economy is recovering from its first contraction in decades in the first quarter.
The novel coronavirus first emerged in China late last year and has since spread across the globe, paralyzing economic activity.