* The Fed’s Powell warns of long-term economic weakness
* The Fed will not push interest rates below zero, Powell says (new everywhere, updates prices, market activity and comments on the US market openly; new byline, changes to dateline, formerly LONDON)
By Saqib Iqbal Ahmed
NEW YORK, May 13 (Reuters) – U.S. dollars erased losses to trade flat against a basket of currencies Wednesday, after Federal Reserve chairman Jerome Powell rejected the idea of using negative interest rates as a stimulus, despite sounding a bleak note on economic growth.
In remarks issued by the Peterson Institute for International Economics, Powell said the country may face an “extended period” of weak growth.
Economic recovery may take time, depending on the progress being fought by the coronavirus pandemic, he said.
U.S.A. The Dollar Currency Index, which measures the strength of the greenback against six major currencies, was slightly changed on the day at. 100.02. The index slid to 99.57 during the session.
Powell said the Fed’s view on negative interest rates has not changed and that it is not something the politicians are looking at.
“Powell clearly intimidated the prospects of negative interest rates for now,” Karl Schamotta, chief marketing strategist at Cambridge Global Payments in Toronto.
“Market participants will look for improved forward guidance and more explicit forms of yield curve control at the June meeting,” Schamotta said.
Dealers or short-term U.S. reduced interest rate futures The Fed will take the unprecedented step of pushing interest rates to zero. Nevertheless, futures contracts due in April 2021 and beyond still signaled expectations of negative prices, according to CME Group’s FedWatch tool.
U.S. President Donald Trump on Tuesday called for the U.S. to “accept the gift” of negative rates – when data showed that the U.S. consumer prices fell 0.8% in April, the biggest fall since December 2008 during a recession.
The dollar index has been trading within a tight range over the past few weeks, but remains only 3% shy of a more than three-year hit at the end of March, supported by increased demand for safe harbor as financial markets continue to hit edge with the economic impact of the pandemic.
While the dollar has benefited from safe harbor flows in the midst of market turmoil, the outlook remains fragmented as hedge funds keep their short stakes on the currency while institutional investors remain bullish.
Elsewhere, the British pound gave up earlier gains to trade 0.2% lower on the day as bond yields plummeted after data showed the economy rising by a record 5.8% in March, though household consumption fell less than feared by some market participants.
The New Zealand dollar slipped 1.0% after the country’s central bank doubled the amount of bonds it bought, opening the door to negative interest rates and sending long-term bond yields at the lowest times.
Reporting by Saqib Iqbal Ahmed; Editing by David Gregorio