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Powell says Fed rate increases suitable as dollar sharply down

Published on: 09/4/18 8:23 AM

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Category: Currency, Forex, Latest News, Market, Trade, Trading, US News, World News



As the DXY Index approached its lows of the week of Aug. 20, Fed Chairman Jerome Powell voiced no reprieve for the U.S. dollar in his Jackson Hole Economic Policy Symposium speech of Aug. 24, saying that the current pace of Fed rate increases is suitable.

Nation’s economy will continue to perform well


Powell said that the nation’s economy will continue to perform well while there’s no apparent risk of overactivity in a particular sector, meaning that market pricing will remain stable for now. This translates to a 25-basis point rate increase at parleys that produce a new economic productions summary.

Fed fund futures price in a 95 percent prospect of a 25-basis point rate increase for September and a 64 percent of another boost in December, the last planned increases until June of next year. EUR/USD stands to profit from a dollar-index pullback, as it makes up 57.6 percent of the index in general. But amid an index pullback, USD/JPY may not wish to participate. USD/JPY sports upside allure in a climate wherein the propensity for risk is improving. The NASDAQ and S&P 500 set intraday records earlier this week.

Meanwhile, the soft-price action around Powell’s speech evinces the prospect of the U.S. dollar’s topping out in the short term amid exceedingly aggressive market rates for the September meeting. The technical perspective also indicates that the dollar is nearing a near-term top-out. The false breakout of July and August has move prices below the rising trend line tracing to the late-April swing low.

At the same time, price is trading below its daily 8-, 13- and 21-exponential moving average envelope, while both daily MACD and Slow Stochastics continue to turn lower.

Dollar’s biggest drawdown in 6 months


Meanwhile, the dollar suffered its biggest drawdown in more than six months amid Powell’s speech as it retreated for a second consecutive week.

The week ahead is also thin on scheduled event risk. The second-quarter gross domestic product growth rate will likely be revised lower, from 4.1 to 4.0 percent. Meanwhile, core personal consumption expenditures inflation may return to the Fed’s 2 percent objective after a brief downdrift.

Expectations might not be enough to bring further adjustment to Powell’s policy outlook, but they might herald the upshift that has taken place since the beginning of August. That might send the U.S. dollar toward the top of its recent range.