Dollar Drops As Fed Powell Pledges Addl. Measures Amid Virus Crisis

By | May 13, 2020
Dollar Drops As Fed Powell Pledges Addl

The U.S. dollar depreciated against its major rivals in the European session on Wednesday, after Fed Chair Jerome Powell struck a cautious tone on economy, warning of a severe downturn from the virus outbreak, and said that the central bank is prepared to implement additional measures to prevent long-lasting economic damage.

“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” Powell said in a webcast event at the Peterson Institute for International Economics.

Although the economic response had been large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks.

The coronavirus crisis raises longer-term concerns, the Fed Chair said, adding that deeper and longer recessions could leave behind lasting damage to the productive capacity of the economy.

The Fed is committed to use its tools to their fullest until the crisis has passed and the economic recovery is well under way, Powell noted.

Data from the Labor Department showed that U.S. producer prices plunged much more than expected in the month of April.

The Labor Department said its producer price index for final demand tumbled by 1.3 percent in April after edging down by 0.2 percent in March. Economists had expected prices to drop by 0.5 percent.

The currency showed mixed performance against its major counterparts in the Asian session. While it fell against the euro and the pound, it held steady against the yen and the franc.

The greenback lost 0.5 percent to a 2-day low of 106.74 against the yen, after advancing to 107.28 at 6:45 pm ET. The pair was worth 107.11 when it closed deals on Tuesday. The greenback is seen finding support around the 102.5 mark. The greenback fell 0.5 percent against the euro to touch an 8-day low of 1.0897. The pair had finished Tuesday’s deals at 1.0847. Next key support for the greenback is likely seen around the 1.10 level.

Preliminary data from Eurostat showed that Eurozone industrial production decreased sharply in March, as several countries went into lockdown to slow the spread of the coronavirus, or Covid-19, pandemic.

Industrial production decreased 11.3 percent month-on-month, which was slightly less than the 12.1 percent slump economists had forecast. In February, output fell 0.1 percent.

The USD/CHF pair logged an 8-day low of 0.9665, down by 0.5 percent from a high of 0.9713 seen at 3:45 am ET. At yesterday’s close, the pair was valued at 0.9692. The greenback is likely to face support around the 0.95 region, if it falls again.

Having strengthened to a 6-day high of 1.4085 at 8:00 pm ET, the greenback pulled back 0.6 percent to 1.4006 versus the loonie. The greenback was trading at 1.4077 per loonie at yesterday’s close. Should the greenback falls further, it is likely to test support around the 1.35 region.

The greenback reached as low as 1.2340 versus the pound, recording a fall of 0.8 percent from a high of 1.2245 set at 5:00 pm ET. The greenback is poised to challenge support around the 1.25 mark.

Data from the Office for National Statistics showed that the UK economy contracted the most since the global financial crisis in 2008, due to the measures adopted to reduce the transmission of the coronavirus.

Gross domestic product fell 2 percent sequentially in the first quarter, which was the largest decline since the fourth quarter of 2008.

The greenback moved down to 0.6524 versus the aussie, compared to yesterday’s New York session close of 0.6471. Continuation of the greenback’s downtrend may lead it to a support around the 0.70 region.

The greenback held steady versus the kiwi, after having retreated from the previous session’s 6-day high of 0.6000. At yesterday’s trading close, the pair was quoted at 0.6076.