US Dollar Price Outlook Still Positive as Markets Wait for Powell Testimony

Andrew Cummings
July 10, 2019

Fed Chairman Jerome Powell is due to appear before Congress on Wednesday and Thursday for his semiannual testimony, and is likely to be questioned about his willingness to ease policy.

The dollar could continue to creep higher if Powell's comments on the USA economy are perceived as neutral or even slightly hawkish, which would support the argument that additional rate cuts will be limited.

He still thought the Fed would cut by 25 basis points this month - the first US cut since the financial crisis - but whether it keeps going was much less clear.

"Now we're scaling things back". While a 25-basis point rate cut is still fully priced for the July 30-31 meeting, strong jobs data saw expectations shift from a 50 basis point cut, which has given the U.S. dollar a lift over recent sessions. "This will support the dollar".

The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 0.2% to 97.132 by 10:40 AM ET (14:40 GMT).

The dollar edged up to 108.990 yen in Asia, which was its strongest level since May 31.

"The Fed's consideration of rate cuts is not only about growth but also about inflation, which remains well below target, and inflation expectations, which were breaking to the downside before the Fed signalled the likelihood of cuts".

Investors suspect the Fed will lower the federal funds rate by 25 basis points (0.25%) to around 2%, but their confidence has been knocked by excellent non-farm payroll figures last week. A week earlier, those forecasts were 75% and 25%, respectively.

Cautious traders should perhaps wait for the release today, after Powell speaks, of the minutes of the FOMC meeting on June 19 for further clues on the Federal Reserve's current thinking but both fundamentally and technically the Dollars looks well placed to make further gains.

"The most important event is Powell's comments".

Meanwhile GBP/USD hit a six-month low before rebounding a little to trade down 0.3% at $1.2496, after United Kingdom retail sales fell 1.6% from a year earlier in June, adding to indications that the British economy is contracting.

Sentiment for the pound remained weak after data on Tuesday showed sales at British retailers rose at their slowest average pace on record, highlighting trouble in the economy.

The gold market is seeing the biggest price swings since late 2016 as traders and investors struggled to read when the Federal Reserve may cut interest rates.

The Aussie was on course for its fifth consecutive day of losses as investors ponder how far the Australian central bank will lower rates.

The dollar also firmed to 108.96 yen, while the euro faded to $1.1204 having been as high as $1.1412 just a couple of weeks ago.

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