Investing.com – The dollar weakened in early European trading Thursday, falling to near three-year lows against a number of riskier currencies after Federal Reserve Chairman Jerome Powell stated the central bank’s easy policy stance was here to stay.
At 3:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 89.920.
The risk-sensitive AUD/USD rose 0.3% to 0.7992, a fresh three-year high, NZD/USD was up 0.2% at 0.7447, just off Wednesday’s high of 0.7455, while USD/CAD fell 0.1% to 1.2496, near the three-year low of 1.2493.
Fed boss Jerome Powell continued his semi-annual testimony to Congress on Wednesday, telling the House of Representatives Committee on Financial Services that the central bank won’t change its extremely accommodative stance until the U.S. economy is clearly improving, particularly the labor market, and would thus look through any near-term spike in inflation.
“Our policy is accommodative because unemployment is high and the labor market is far from maximum employment,” Powell said.
These remarks maintained the dovish tone he had used in his testimony before the Senate on Tuesday.
“The Fed’s reiteration of a looser for longer policy and the lack of signal of any reduction in bond purchases regardless of the improving economic outlook remains – from an FX perspective – a key point in favour of a generalised dollar decline,” said ING analysts, in a research note.
Easy financial conditions, the promise of fiscal stimulus, with an additional $1.9 trillion making its way through Congress, and an accelerating Covid-19 vaccine rollout have resulted in growing confidence in a global economic recovery, to the detriment of the safe-haven dollar.
With Powell emphasising the importance of the labor market, eyes will focus later in the session on the weekly unemployment claims data. Analysts are expecting a slight improvement though still-elevated levels of both initial claims and continuing claims.
The second print of the fourth quarter gross domestic product release is also due later Thursday, with analysts expecting a reading of 2.0%, which would be up slightly from the first print of 1.9%.