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Dollar Weakens as Fed Boosts Risk Sentiment

16 June 2020

The dollar sold off in early European trade Tuesday, as the Federal Reserve’s move to start purchasing U.S. corporate bonds boosted sentiment at the expense of safe havens.

At 2:55 AM ET (0655 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 96.498. EUR/USD gained 0.2% to 1.1340, while the risk-sensitive AUD/USD rose 0.1% to 0.6924.

Late Monday the U.S. central bank flew to the rescue once more, stating it will start purchasing investment grade U.S. corporate bonds in a bid to secure companies' access to cash and ensure credit market liquidity.

“The Fed unloaded additional stimulus measures on Monday after market sentiment had soured over the past week,” said analysts at ING, in a note to clients. “The Fed’s Main Street lending program and expanded bond purchase scheme should help support risk sentiment with Jerome Powell trooping to the Senate to give testimony later on Tuesday.”

Attention will quickly turn to Fed Chair Jerome Powell’s virtual testimony to the Joint (NASDAQ:JYNT) Economic Committee on his economic outlook and recent monetary policy decisions, at 10:00 AM ET (1400 GMT).

“Powell will testify to Congress later today and will likely repeat the dovish message about the economy delivered after the FOMC meeting last week,” said Chief Economist Timothy Fox at Emirates NBD, in a note to clients.

Elsewhere, USD/JPY rose 0.1% to 107.47 after the Bank of Japan kept monetary settings steady earlier Tuesday, but increased the size of its lending packages for cash-strapped firms to $1 trillion from about $700 billion announced last month.

Sterling gained Tuesday, amid optimistic noises out of London and Brussels after Brexit talks between Prime Minister Boris Johnson and European Commission President Ursula von der Leyen. 

However, the latest round of U.K. employment data were mixed: the jobless rate unexpectedly held steady at 3.9% over the three months to April, whereas many had expected a rise in the unemployment rate to 4.7%. However, the claimant count in May rose by nearly 530,000 and the rise in April's claims was revised up to over 1 million from 857,000. GBP/USD climbed 0.3% to 1.2641 and EUR/GBP fell 0.1% to 0.8972.



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