Fox Business/Jonathan Garber
US dollar sinks under Fed’s pledge to keep rates low during coronavirus swoon

The U.S. dollar on Thursday plunged to a more than 2.5-year low against a basket of its peers after the Federal Reserve pledged to keep interest rates low until the economy shows signs of a sustainable recovery.

The dollar index fell 0.71% to 89.72 Thursday, the lowest since April 2018. The greenback has fallen 13% since COVID-19 lockdowns began in mid-March and is down 6.6% this year. A close below 88.50 would be the worst since November 2014.

The dollar is trading at/near multi-year lows against major currencies including the euro, Japanese yen, Australian dollar and Chinese yuan. A weaker dollar makes American-made products cheaper for overseas buyers, but also makes imports more expensive for U.S. consumers.

“The dollar has lurched lower against nearly all the world currencies today,” wrote Marc Chandler, chief market strategist at the capital markets trading firm Bannockburn Global Forex.

The selling comes a day after the Federal Reserve said it would maintain the size of its $120 billion per month asset purchase program until “substantial further progress” is made in meeting its goals of maximum employment and price stability.

The central bank on March 15 slashed its federal funds rate to near zero in order to help combat what would become the sharpest economic slowdown of the post-World War II era amid stay-at-home orders aimed at slowing the spread of COVID-19.

The Fed cut its key interest rate by 150 basis points in March, in addition to taking other measures, to ensure the flow of credit through the economy.

“The decline in the US currency’s interest rate advantage over its G10 peers” has been a factor in the dollar’ demise, wrote Mark Haefele, chief investment officer of UBS Global Wealth Management. The spread between the U.S. and German 2-year yields has shrunk to 90 basis points from 215 bps.

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CNN Business/Paul R. LaMonica
Joe Biden’s financial team could create a giant stock bubble

Federal Reserve Chair Jerome Powell has made abundantly clear that he is more concerned about the challenging job market than the possibility that more stimulus may eventually lead to higher inflation. It’s a view shared by his former boss — Janet Yellen.

So with Yellen and Powell set to work closely together again, because she is President-elect Joe Biden’s nominee for Treasury Secretary, do investors need to worry that their policy position might push the already soaring stock market even higher?

“Powell has been talking a lot about the labor market and that the healing must include all workers that want jobs. And Yellen is a labor economist,” said Quincy Krosby, chief market strategist at Prudential Financial. “So it’s possible the Fed could be too dovish and let inflation get hotter.”

Inflation is not a worry currently. Consumer prices have risen less than 2% over the past 12 months, according to the Fed’s preferred measure of inflation, which looks at personal consumption expenditures.

And interest rates are not going anywhere anytime soon. They will be stuck near zero for several more years, according to the Fed’s latest economic projections — which were released Wednesday.

But some worry that may be causing bubbles to form. Stocks are near all-time highs and the housing market is red hot.

This is driven, in part, by a friendly monetary policy from the Fed and hope for more stimulus from the coming Biden administration.

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Kitco/Anna Golubova
‘Convincing move higher’ in gold: TD Securities looks for $2,000+ gold price next year

Gold’s best days are still ahead of it, according to the TD Securities outlook, which is looking for the precious metal to keep rising throughout 2021 and 2022.

TD Securities is long gold and silver in its outlook, highlighting inflation expectations, Fed’s flexible average inflation targeting, currency debasement fears, weaker U.S. dollar, and lingering economic concerns as some of the main drivers.

“Gold enthusiasts may not need to wait much longer for a convincing move higher. The combination of a commitment to the zero bound and a flat yield curve should be a bullish catalyst, as it caps short and long-term rates at the same time as fiscal stimulus and vaccines drive economic normalization. This suggests that the market should see a boost in inflationary expectations, leading to a renewed downtrend in real rates and a positive outlook for gold,” TD Securities commodity strategists said.

The bank’s outlook sees gold trading on average around the $2,050 an ounce mark towards the end of next year and then climbing towards $2,225 on average by the end of 2022.

“The big picture is still very conducive to $2,000+ gold. Even if the planned vaccination programs go without a hitch, it will take well into H2-2021 before herd immunity is achieved and the economy normalizes,” the strategists said. “Meanwhile, the second wave of COVID-19 infections will ravage the economy, assuring that the U.S. and indeed global economic activity is below potential for a prolonged period.”

The winter of 2021 will be a difficult one from the perspective of rising coronavirus cases and economic data. “Historically, this means a good time for gold and a reduction in risk appetite,” the strategists noted.

On top of that, more fiscal stimulus will be added into the economy, which will boost inflation expectations and work in favor of gold next year, TD’s outlook pointed out.

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CNBC/Fred Imbert
Weekly jobless claims unexpectedly rise, hit highest level since early September

Jobless claims unexpectedly rose last week as states reimposed coronavirus restrictions as lawmakers struggle to push through new government aid, according to a Labor Department report Thursday.

The number of first-time unemployment-benefits filers totaled 885,000 in the week ending Dec. 12, the most since the week of Sept. 5. Economists polled by Dow Jones expected initial claims to fall to 808,000.

Initial claims for the previous week were revised higher by 9,000 to 862,000.

In all, 20.6 million Americans were receiving some kind of unemployment benefits through Nov. 28, the report said.

These numbers “really highlight the fragility of the labor market, particularly now as the second resurgence of the coronavirus [is] leading to further business closures and additional job losses, ” Lindsey Piegza, chief economist at Stifel, told CNBC’s “Squawk Box.”

The recent uptick in weekly jobless claims comes as coronavirus cases surge across the country.

More than 247,000 new infections were confirmed in the U.S. along with more than 3,600 Covid-related deaths, according to data from Johns Hopkins University. Data from The Atlantic’s COVID Tracking Project showed a record 113,000 people were hospitalized with the virus.

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