U.S dollar drops lower, as U.S Federal Reserve plans on boosting inflation

The U.S dollar plunged on Friday at London’s trading session, giving up most of its earlier gains after U.S. Federal Reserve’s new strategy is boosting inflation.

The U.S. Dollar Index that monitors the greenback against a basket of other currencies drifted lower by 0.66% to trade at 92.373 (11:38GMT).

Quick fact: The U.S. Dollar Index tracks the American dollar against other major currencies such as the Japanese yen, British pound sterling, Swedish Krona, the Euro, etc.

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Individuals hoping to meet foreign exchange payment obligations, via dollar transactions to European countries, and Japan, would need to pay more dollars in meeting such obligations.

Powell emphasized that the new inflation strategy is “flexible,” with the Committee aiming to achieve this objective “overtime” without defining a specific lookback period or horizon over which to achieve the average (which will sound familiar to those used to the RBA’s weakly specified timeframe for achieving 2-3% inflation).

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Stephen Innes, Chief Global Market Strategist at AxiCorp in a note to Nairametrics, spoke about the geopolitical risk surrounding the safe-haven currency. He said;

“Familiar themes dominate the headlines and offer little of note, leaving FX largely unmoved post-Fed Chair Powell’s speech. US-China tensions continue to simmer, with the US imposing sanctions on companies involved in South China Sea development, while China launched four missiles into the sea in that region.

“Still, with the US-China trade deal intact, the markets seem indifferent to tensions on other fronts.”

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However, currency traders’ focus will shift to next week, where particular attention will likely be final PMIs and labor market data in the world’s largest economy.