FX.co ★ US dollar: three reasons for short-lived rise amid Fed’s new strategy

Investors price in Fed’s decision before its announcement

According to analysts, the US dollar nosedived and then rapidly advanced after the Fed presented its new strategy. The greenback’s surprising reverse was mainly triggered by the fact that the Fed’s decision was quite predictable. Investors had expected that the regulator would make a major shift in its approach to managing inflation and Jerome Powell confirmed their predictions. After that, market participants took profit trading currencies with high beta coefficient.

Greenback jumps when investors return to US assets

Most investors were attracted by the promises of cheap currencies and high liquidity that is typical for the US stock market. This allowed the US dollar to gain in value. The greenback was also supported by higher rates on 10-year government bonds. Experts suppose that the Fed’s new policy will revive the national economy and allow it to accelerate thus boosting the national currency.

Fed’s positive announcements

Earlier, markets expected the Fed would remain cautious concerning a shift in its monetary policy. However, Jerome Powell turned out to be more optimistic. The Fed's management assesses the US economy mostly positively, paying attention to the improvement in macroeconomic data. The regulator also registers significant changes in the US labor market. Analysts suppose that the current situation is having a favorable impact on the US dollar.