Forexlive Americas FX news wrap: ‘Powerful’ message from Powell sends Dollar soaring


Markets:

  • S&P 500 down 3.4%
  • Gold down $21 to $1,737
  • US 10-year rate up 1 basis point to 3.03%
  • WTI crude oil up $0.34 at $92.86
  • USD leads, NZD lags

There was a dovish trend in the market before Powell as the PCE inflation report came in soft. This was validated by Bostic as he said it tipped more slightly towards 50bps in September.

However, everything fell apart with Powell. He gave a crisp 8-minute speech that included strong language about keeping rates higher for longer and taking “strong” action, a tool he’s never used before. In terms of clear signals, he said Sept was still undecided while waiting for data.

There was no big red flag in the speech that argued for buying the dollar and selling stocks. Instead, it was the collective tone of the speech as well as its brevity. He was referring to a clear parallel to the 1970s and the importance of keeping rates high longer rather than slackening them at the first sign of economic weakness or falling inflation. Powell also stressed that the Fed was willing to tolerate economic hardship to achieve its goals.

I’d say the Fed doesn’t have the credibility to stay hawkish if the economy turns, but the market certainly took a stand against that today. The initial reaction snowballed and the dollar supply barely yielded a pip, virtually all ending at the extremes of the day.

The moves argue that stocks were looking for some sort of Powell’s dovish index but couldn’t find it. Curiously, the rates market did not move much on Powell. In bonds, the flight to the safety supply would have helped that, but even in fed funds futures, the price remained largely unchanged.

The euro had attempted to stage an earlier, accelerated rally on the PCE data, but was caught by Powell to end unchanged and at the lowest weekly close since 2003.

Cable also suffered on a heavy day outdoors to end 90 pips lower.

Oil managed to finish slightly higher, but that didn’t help commodity-linked currencies as they all fell, although the Loonie was the best of the bunch.

The biggest could have been USD/JPY as even on a brutal day for stocks it added 100 pips. The yen has really lost its safe haven status and that’s a big change. This reflects rate differentials at the moment and today’s decision comes with hawkish overtones from the Fed, so there is fundamental support, but long-term rates were lower today and this is not the case. is not the first time. Beware of additional dollar earnings from here.


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