Powell confirmed that interest rates would not rise any time soon, effectively pulling back USD; GBP continued to gain and NZD slightly underperformed

• USD rebound falters as Powell restated the dovish stance
• GBP continues to gain as vaccine outlook looks promising
•  NZD range-bound against USD due to investors’ cautious attitude

Recently the US Dollar has been performing quite well due to the rising yields on longer-term Treasury bills, which helped bring the currency up from the 3-year low. This rise in yield seems to have encouraged investors to overlook the upcoming stimulus spending, which, however, was kindly reminded by Fed’s Powell. The Chairman made the statement during a live session with a Princeton professor on Thursday that, interest rates would not rise any time soon. He expressed that, the economy remained far from where the Fed wanted it to be and that he saw no reason to change the status quo “until the job is well and truly done.”

Usually the increase on fiscal spending and promising outlook on stimulus package would weigh on the local currency as it increases the supply which significantly diminishes the value. On the other hand, however, rising yields make the currency more appealing due to higher returns. Two forces are making the trend of USD ambiguous and volatile. As a results, although many analysts predict that USD will continue its weakness, there is growing concern that the rise in yields will temper that trend. On the macro front, jobless claims in the week ending January 8th came in at 965k yesterday, highest since August 2020, underpinning the urgent need for the stimulus package.

GBP continued to gain during Thursday’s session as the UK vaccine rollout seemed to be well on track. Major pharmacies such as Boots and Superdrug will begin administrating the vaccine to the public soon. Boris Jonson also confirmed that, the distribution would be turned to 24/7 as soon as possible. GBP investors are cheering over the likelihood on the reopening of the economy as a debut since its official exit from the EU.

In APAC, NZD made limited gains as investors are still taking a cautious attitude. Analysts at Australia and New Zealand Banking Group have recently changed their outlook and expected the inflation rate to be cut to 0.1% in May, reflecting a more positive outlook than previously predicted.