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28.04.202107:26 Forex Analysis & Reviews: Investors making bullish calls on USD ahead of Jerome Powell's testimony; others believe that demand for USD to fall even more after April's Fed meeting

Exchange Rates 28.04.2021 analysis

Since the beginning of April, the greenback has declined by almost 3%, while in March it has logged the largest increase since November 2016.

Notably, over the past month, the fundamental picture for the US dollar has not changed much. Macroeconomic data for the United States is in line or exceeds economists' expectations.

Analysts at Saxo Bank noted that they did not see any fundamental reasons for the weakening of the US dollar, except for one. In April, US Treasury yields stopped growing and moved to consolidation.

According to experts, US Treasuries weakened due to the dovish rhetoric of the Fed, which pushed them lower and reduced the attractiveness of the US currency.

By keeping nominal and real US Treasury yields low, the Fed is depriving the US dollar of the market advantage it would have had thanks to the excellent performance of the US economy, strategists at Credit Agricole pointed out.

The weakening of the US dollar is also attributed to the fact that almost all stimulus programs have been implemented. At the same time, the Fed has not changed anything for months, monitoring inflation and the labor market results. So, traders have to take into account general ideas and forecasts rather than fundamental factors, Saxo Bank said.

On Monday, the greenback managed to reach a bottom in the area of 90.65. On Tuesday, it moderately corrected upwards.

Global stocks started the week by hitting record highs, but then showed slight retreatment, which helped the US dollar to stay above its recent lows.

Exchange Rates 28.04.2021 analysis

Additionally, the epidemiological situation is also of great concern to investors. New outbreaks of coronavirus infection threaten to prolong the pandemic.

The coronavirus is raging in India. The number of infected people in the country increases daily by 350,000. This is only slightly less than the number of cases worldwide in February. Just like in February last year, experts cannot tell exactly when the pandemic eases.

This is a step back. Market uncertainty is increasing. This situation once again reminds investors that they will have to deal with a serious risk of a rise in the pandemic during the year, analysts at JP Morgan Asset Management said.

The greenback remains steady US Treasury yields have not fallen to their recent lows.

After a reversal from the 14-month high of 1.7760% to 1.528% logged in mid-April, the 10-year Treasury yield has entered a sideways channel. Besides, investors are waiting for a preliminary estimate of US GDP in the first quarter.

If US GDP is much higher than the preliminary estimate of 6.9%, then inflation expectations are likely to rise. Earlier, such expectations pushed up the US Treasury yields, thereby fueling demand for the US dollar.

The US dollar index advanced for the first time in three days after falling to a two-month low on Monday ahead of the announcement of the Fed's decision on interest rates on Wednesday.

No major changes in the monetary policy are expected. Traders are interested in the Fed's rhetoric regarding the publication of strong macroeconomic data.

Exchange Rates 28.04.2021 analysis

Bulls still have a glimmer of hope that Jerome Powell will speak out about a number of pressing issues, namely, when to expect a reduction of QE.

The recent weakness of the greenback was due to the Fed's commitment to ultra-soft monetary policy. If the regulator gives another signal that may lead to overheating of the economy, investors are likely to sell off the US dollar.

The fact that the US dollar index has dipped at the end of the last seven of the eight FOMC meetings confirms our view that the bet on the hawkish stance of the Fed in recent months has not been factored in, strategists at Westpac said.

Commerzbank believes that the Federal Reserve should stop speculation about an earlier reduction in asset purchases and an increase in the interest rate.

A great number of market participants expect the Fed to emphasize once again that the time has not yet come for an end to expansionary monetary policy and that the regulator will be tolerant of higher inflation for some time.

The US dollar is consolidating around 91.00 (the level where the 100-day moving average passes).

In case of strengthening of the bearish bias, the US dollar index may decline to the psychologically important level of 90.00 and to the lows of February in the area of 89.65.

Viktor Isakov,
Analytical expert of InstaSpot
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