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Summary
- Jerome Powell, Chairman of the Federal Reserve, announced that the Fed would continue with its low interest rate and bond-buying measures.
- The USD rose 0.18% after a continuous 6-day decline, which occurred due to the recovery observed in the global economies.
- Chairman Powell also stated that the Federal Reserve might consider issuing a digital currency for the greenback due to the increased popularity of cryptocurrencies.
After a tumultuous start to 2021, the US Dollar continues to remain volatile with bleak expectations of recovery for the remaining year. Bank experts are of the view that this dismal growth of the greenback was expected to continue throughout 2021 due to the uncertainties pertaining to the coronavirus pandemic.
Amid this ambiguity, Jerome H. Powell, the Chair of the Federal Reserve, announced that the central bank had planned to keep the current policies as they were, including low interest rates and large sale bond buying. The measures to promote economic growth have been sustained as the economy is far away from its desired goals.
The expected inflation and employment levels are not in sight. However, Mr. Powell also stated that a temporary rise in the US inflation could also be expected. But this expected rise in inflation should not create a larger change, and big stimulus packages from the US government should not increase inflation beyond manageable levels.
Impact on the USD and Other Markets
Powell’s speech has led to subsequent impacts on the greenback as well as the commodity markets. The US dollar index rose 0.18%, from 90.01 to 90.17, post the announcement. This was the greenback’s first uptick after a constant decline in value over the past one week.
The USD fell as reports about global recovery weakened its stance. Demand for the dollar was revived after Powell’s speech on the 23rd of February.
Subsequent impact on commodity markets was also observed, as gold futures traded lower following the speech by Powell. Nymex crude futures also fell after recording a 13-month high of USD63 per barrel earlier.
If the market expectations about the interest rates continue to remain low despite a hike in inflation rates, the US dollar could fall against its foreign currency counterparts.
Possibility of a Digital Dollar
Chairman Powell also stated that the Fed might consider issuing a digital dollar. He also stated that the idea of a digital currency is a “high-priority project” for the Fed. However, this move has many risks attached to it.
Being the reserve currency for the world, the USD must adopt the digital presence in a right way. This could also pose potential technology-related issues that must be considered beforehand. There are “significant technical and policy questions” that need to be addressed before such an idea is actualised.
This strategically timed announcement about the digital issuance of the dollar came when Bitcoin prices are surging. There is an increased demand for cryptocurrencies like Bitcoin, Ethereum, Litecoin, etc., which has forced the Federal Reserve to consider the need to make a digital presence for the greenback.
