Dollar corrects after Powell’s speech on inflation
2023.02.08 08:25
Dollar corrects after Powell’s speech on inflation
By Ray Johnson
Budrigannews.com – Despite the extremely strong employment figures from last week, Federal Reserve Chair Jerome Powell’s decision not to significantly toughen his stance on inflation in a closely watched speech on Wednesday sent the dollar lower.
Powell reiterated his belief that a process of “disinflation” is in progress during a Tuesday question-and-answer session at the Economic Club of Washington. He said that if the economy continued to be strong, interest rates might need to rise more than anticipated.
As Powell spoke, the dollar fell further and lost ground in early European trading on Wednesday.
After falling to $1.067 in the previous session, the euro was last up 0.21 percent to $1.075, its lowest level since Jan. 9. It remained well above the $0.953 low in September, which was the lowest level in 20 years.
Chris Weston, Pepperstone’s head of research, stated that Powell “didn’t necessarily say something that was tangibly new.”
“For the time being, we’re less sensitive to Fed officials and far more sensitive to data,” since “the markets and the central bank are all in a position now where they’re just watching the data.”
Investors were also digesting remarks made by two German representatives of the European Central Bank (ECB), who asserted that interest rates in the Eurozone would continue to rise.
Joachim Nagel, the head of the German central bank, stated to the newspaper Boersen-Zeitung on Tuesday that “from where I stand today we need further, significant rate hikes.”
His coworker, Isabel Schnabel, stated, We cannot expect inflation to return to our inflation target of 2% in the medium term because it is not yet clear that monetary policy is actually working so much.
The lost 0.19 percent on Wednesday to 103.1 against a basket of currencies, after losing 0.3 percent in the previous session.
After falling to $1.196 on Tuesday, sterling recovered by 0.3 percent to $1.209.
After Friday’s phenomenal jobs report, which revealed that nonfarm payrolls had increased by 517,000 jobs last month, the greenback experienced a brief rally.
Investors raised their expectations regarding the extent to which the Federal Reserve would have to continue raising interest rates, which resulted in the U.S. dollar index reaching a one-month high of 103.96 on Tuesday.
On Wednesday, futures pricing revealed that markets anticipate the Fed funds rate reaching a peak just above 5.1 percent by June, up from its current range of 4.5 percent to 4.75%.
In the meantime, derivatives market pricing indicates that traders anticipate the ECB raising rates to approximately 3.5% by the end of the summer, up from the current 2.5%.
In other areas, the yen gained 0.15 percent, with one dollar purchasing 130.88 yen, following a 1.2% increase in the previous session.
According to data released on Tuesday, strong temporary bonuses contributed to the first rise in real wages in nine months in Japan.
The Bank of Japan is expected to begin tightening its extremely loose monetary policy if spring labor talks result in substantial pay increases.
After gaining more than one percent on Tuesday, the fell 0.26 percent to $0.634, while the gained 0.42 percent to $0.699.
As anticipated, the Reserve Bank of Australia increased its cash rate by 25 basis points on Tuesday, but it reiterated that additional increases were required.
