The dollar showed some recovery against euro supported by comments by the president of the US central bank regarding the reduction of the balance sheet of the institution. The dollar index added 0.34% to 95.56 points, while the euro dropped 0.35% to $1.1500 a day after hitting its highest level since mid-October.
Fed Chairman Jerome Powell said that in the future, the balance sheet (of the Fed) will be considerably lower than current levels, giving an impression that the Fed could decide to accelerate the pace of reduction of balance sheet, an action that corresponds to a restrictive monetary policy, in the same way as rate increases.
And a tightening of monetary policy tends to favor the dollar.
Speaking to the American Economic Club, the head of the Fed said that “we want to have the balance sheet return to a more normal level… no larger than it needs to be to conduct monetary policy effectively.” He said he did not know what the exact level could be considered “normal”.
The speed at which the central bank is reducing its balance sheet is a matter of regular concern for the markets, which see it as a less direct mechanism than raising interest rates to raise the cost of credit. In a context of stock market turbulence, every intervention by Jerome Powell has a significant, and often negative, impact on the financial markets. Powell has particularly drawn the wrath of Donald Trump, who criticizes him to raise interest rates too quickly, while inflation shows no sign of slowing down.
Other areas of concern include the “shutdown of the United States, the slowdown in Chinese growth, and the trade war between the United States and China,” said Naeem Aslam, an analyst for Think Markets.
These problems did not seem to be in immediate resolution.
US administrations remained partially closed for the 20th day for lack of an agreement between Donald Trump and the Democrats on financing a wall on the border with Mexico.
As for trade tensions, the three days of negotiations held in Beijing between Chinese and Americans have helped to “lay the foundations” of an agreement, said Thursday the Chinese Ministry of Commerce, but no concrete progress has been announced.
The Chinese currency appreciated against the dollar, finishing at 6.7885 yuan.