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Market sentiment pushes US dollar to its lowest level in three years

25 Feb 2021 02:14 PM
[2:05 PM] Mohammad Shanti

Market sentiment pushes US dollar to its lowest level in three years

As risk appetite continues to improve, the US dollar is stabilizing near its lowest level in three years, especially after the cautious testimony of US Fed Governor Jerome Powell.

On Wednesday, Powell indicated on the second day of his testimony, that the bank will keep its current monetary policy and will not make any adjustments until the US economy shows a significant improvement. He also indicated that there could be a rise in inflation soon.

It should be noted that investors' global risk appetite has improved due to the strong incentives that governments and central banks resorted to, to push the economy far away from deflation and move forward with Covid-19 vaccines against.

This risk appetite led to a decline in demand for gold and bonds, and instead directed attentions towards stocks, which pushed bond yields upwards, especially the US 10-year bond yields, which settled at the highest levels of 1.4%.

The recovery in global demand of oil had a positive effect on its prices, which managed to achieve its highest levels in more than 13 months during today's early trading. Oil prices were also supported by the decline in oil production in the United States of America due to the severe weather conditions. Brent crude rose 0.3% to $67.23 a barrel, while West Texas crude rose by 0.1% to $63.30 a barrel.

EIA statistics indicated that US crude production declined by more than 10%, "one million bpd, over the past week". It also stressed the possibility of a reduction in fuel supplies in the US, the largest consumer of oil in the world, after refinery supplies fell recently to their lowest levels since September 2008.

In the currency market, the New Zealand dollar continues its rise against the US dollar to the level of 0.7440, its highest level since February 2018. High commodity prices and optimism surrounding the improved New Zealand economy, supported by a better export performance and the global economic recovery, made Standard & Poor raise its credit rating from AA to AA+.

As for the pound sterling, due to the increase in commodity prices following the new tariffs between the UK and the EU, the possibility of higher inflation rates in the coming period supported the recovery of the economy. Thus, the currency rose at a rapid pace against the US dollar to settle at its highest levels since April 2018 at 1.4250, and it may continue rising to the 1.43 level.

Markets await the preliminary US GDP data for the fourth quarter of 2020 at 1:30 GMT, which may show some recovery. In addition, the unemployment claims report which is forecast to show a drop to 828k, from the previous reading of 862k.

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