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Dollar Rebounds From Two-Year Trough on Fed View

LONDON (Reuters) - The dollar rose on Thursday, pulling away from a two-year trough after less dovish than expected minutes from last month’s U.S. Federal Reserve meeting prompted bears to buy into the heavily shorted currency in its biggest one-day surge since June.

The dollar index, which tracks the greenback’s value against a basket of currencies =USD, had climbed 1% above the two-year low at 92.12 hit on Tuesday, and was consolidating gains at 92.90 in early London trading.

The jump following the release of the Fed minutes on Wednesday was the dollar’s biggest single-day rise since early June, according to Refinitiv data.

“Yesterday did see a large reversal of some of the recent weakness with the dollar index bouncing back,” Deutsche Bank strategists commented in their morning note.

Speculation has been rife that the Fed will adopt an average inflation target, and seek to push inflation above 2% to make up for years it has run below, or look to cap government bond yields as part of a broader policy review.

The minutes were vague on the matters and merely said “a number” of Fed members thought it would be helpful to make a revised statement on its policy strategy at some point, without providing details or timing.

But for many analysts, the main takeaways were obvious.

“Overall, the picture should be clear: the economy is in serious difficulty due to the virus; the Fed is not going to raise rates for a long, long time; and at some point it will make that clear with a new set of targets, goals, and strategy (...)”, wrote Michael Every, a strategist at Rabobank.

The euro - the biggest beneficiary of the dollar weakness - fell back below $1.19 and stood at $1.1856, up 0.16%.

Short bets against the world’s dominant reserve currency had risen to their largest since 2011 last week and long bets on the euro were at a record high. 

The pound fell a quarter of a percent to $1.3078 and the dollar jumped about 0.7% on the yen to 106.00.

After hitting an 18-month high of $0.7275 before the meeting, the Australian dollar fell back below 72 cents to $0.7180. The New Zealand dollar dropped almost 1.3% from its intraday high to sit at $0.6561.

Reporting by Julien Ponthus; Chart by Saqib Iqbal Ahmed; Editing by Alex Richardson

Source: Reuters

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