U.S. Dollar (DXY) Remains Under Some Pressure After Powell’s Speech

Key Insights

• Fed Chair Jerome Powell has already delivered his speach, and markets have been volatile while he spoke. 
• Powell has mostly talked about inflation, but markets’ first reaction suggests that traders do not view his words as too hawkish. 
• The situation may change quickly so traders should be prepared for fast moves. 

In His Speech, Powell Focused On Inflation

Fed Chair Jerome Powell has just delivered his speech at the Jackson Hole Symposium. In his speech, Powell highlighted the importance of the current fight against inflation.

He noted that central banks must deliver low and stable inflation, aiming for price stability. Powell added that public’s expectations were an important factor.

The longer the period of high inflation, the more entrenched inflation expectations become. At this point, public’s expectations remained under control, but the Fed must push inflation lower to preserve the trust in policy.

Powell added that the Fed would make forceful and rapid steps to moderate demand. However, he also said that it might be appropriate to slow the pace of rate hikes in the future. As usual, the Fed’s decisions will depend on the data.

The U.S. Dollar Index (DXY) has settled near the 108 level after Powell’s speech. Interestingly, traders have not interpreted his focus on inflation as a hawkish sign. However, the situation may change towards the end of the day as today’s trading session will be volatile.

Treasury yields are moving higher, which may provide some support to the U.S. dollar. However, the bond markets’ reaction is modest, and it looks that traders need more time to think about Powell’s words.

U.S. Economic Reports Served As Additional Catalysts For Traders

Today, traders also had a chance to take a look at Personal Income and Personal Spending reports from the U.S. The reports indicated that Personal Income increased by 0.2% month-over-month in July, compared to analyst consensus of 0.6%. Personal Spending grew by 0.1%, while analysts expected that it would increase by 0.4%.

PCE Price Index declined by 0.1% month-over-month in July. The Fed is using the PCE Price Index in its decision-making process, so it’s an important catalyst. The report indicated that inflation may be close to its ceiling, but further reports will be needed to confirm the peak in inflation.

The final reading of the Michigan Consumer Sentiment report showed that Consumer Sentiment improved from 51.5 in July to 58.2 in August, compared to analyst consensus of 55.2.

Currencies React To Powell’s Speech

GBP/USD made an attempt to settle above 1.1900 but lost momentum and pulled back towards the 1.1850 level. EUR/USD touched highs near 1.0090 but also pulled back.

EUR/USD must settle above the 20 EMA to have a chance to develop sustainable upside momentum. In case EUR/USD continues to trade below this level, bears will have a good chance to push it back below 1.0000.

USD/JPY has returned to the 137 level. The Japanese yen remains under pressure due to the dovish policy of the Bank of Japan.

AUD/USD is trading near 0.6950, while NZD/USD declined below the 0.6200 level. USD/CAD is testing the 1.2980  level. The Canadian dollar is under pressure amid a pullback in commodity markets.

For a look at all of today’s economic events, check out our economic calendar.