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Dollar falls as US stocks rebound from three-year lows

By Lawrence Gash

Further Fed action and expected stimulus bill boosts markets

The dollar (USD) has fallen widely in Tuesday trading after the Federal Reserve strengthened its efforts to blunt the economic impact of Covid-19.

The Bloomberg Spot Dollar Index, which tracks the performance of a basket of 10 major currencies against the world’s reserve currency, fell as much as 1.5 per cent, having recently reached an all-time high.

By mid-afternoon trading the dollar stood down 0.43 per cent on the euro (EUR) and 1.57 per cent on sterling (GBP) despite Britain entering a state of restrictive lockdown. The Norwegian krone (NOK) experienced its largest gain on the dollar on record, having previously led the way in losses last week.

The long-term economic impact of the Federal Reserve’s decision to cut rates to zero, inject trillions into faltering parts of the American financial system and resume QE infinity will only become clear in the years to come. In the immediate short-term the US central bank seems to have achieved its aim of calming markets and improving liquidity conditions.

These measures, along with plans to give credit to SMEs, guarantees of direct loans to companies and an unprecedented move into the corporate bond market, have buoyed investors and institutions somewhat. Although, as evidenced by the rush from cash into traditional safe-havens such as gold and treasuries, market sentiment is still far from optimistic.

Nonetheless, US stocks have rebounded strongly from recent three-year lows, with the Dow Jones, Nasdaq and S&P 500 up 7.88, 6.25 and 7.13 per cent respectively.

American business activity could pick up, pandemic or not, with president Donald Trump tweeting:

FURTHER READING: Latest PMI data points to major European recession

FURTHER READING: Sports Direct comes under fire while JD Sports emphasises resilience

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