Dollar ends lower after dovish J. Powell's testimony: July 15, 2021

Market Review - 14/07/2021 23:33GMT  

Dollar ends lower after dovish J. Powell's testimony

The greenback pared recent gains and ended the day lower against majority of its peers as prepared remarks from the Federal Reserve Chairman Powell hinted that the central bank was willing to be more patient before tightening monetary policy.   
  
Reuters reported the U.S. job market "is still a ways off" from the progress the Federal Reserve wants to see before reducing its support for the economy, while current high inflation will ease "in coming months," Fed Chair Jerome Powell said in remarks prepared for delivery at a congressional hearing on Wednesday.      "Inflation has increased notably and will likely remain elevated in coming months before moderating," Powell said, restating the U.S. central bank's faith that current price increases, despite the concerns they are raising about unmoored inflation, are tied to the reopening of the economy and will prove fleeting.     Meanwhile "there is still a long way to go" in repairing a labor market that is 7.5 million jobs away from its pre-pandemic level, with the burden falling hardest on lower-wage workers and major ethnic and minority groups, and the overall participation rate still depressed, Powell said.  
  
Versus the Japanese yen, despite briefly edging up to session highs at 110.69 at Asian open, dollar erased its gains and dropped to 110.42 at European open. Intra-day decline accelerated at New York open after the release of US PPI data price fell to 109.94 near New York close on drop in U.S. yields and dovish Powell's testimony.  
  
News from Reuters on U.S. producer prices increased more than expected in June, suggesting inflation could remain high as robust demand fueled by the economy's recovery from the COVID-19 pandemic continues to strain the supply chain.    The producer price index for final demand increased 1.0% last month after rising 0.8% in May, the Labor Department said on Wednesday. In the 12 months through June, the PPI surged 7.3%. That was the biggest year-on-year rise since in November 2010 and followed a 6.6% advance in May.    Economists called by Reuters had forecast the PPI increasing 0.6% in June and rising 6.8% year-on-year.  
  
The single currency took a breather after Tuesday's selloff to a 3-month trough at 1.1773 and price rebounded to 1.1799 in European morning. The pair then found renewed buying at 1.1777 and rose to 1.1827 at New York open and later edged higher to sessions highs of 1.1838 on broad-based usd's weakness and J. Powell's dovish comments.  
  
The British pound found renewed buying at 1.3802 at Asian open and gained to 1.3862 in European morning on release of UK CPI data together with cross-buying in sterling especially vs euro. The pair continued to ratchet higher and rose to an intra-day high at 1.3891 in New York morning on dollar's broad-based weakness before retreating to 1.3849 on cross-selling in sterling.  
  
According to Reuters, the British inflation rose further above the Bank of England's target in June when it hit 2.5%, up from 2.1% in May, official data showed on Wednesday.    Economists polled by Reuters had expected consumer price inflation (CPI) to hit 2.2% in the 12 months to June.     The BoE has said inflation will peak above 3% as Britain bounces back from its coronavirus lockdowns but it also thinks that the rise will be temporary and does not require it to reduce its huge stimulus for Britain's economy yet.

Data to be released on Thursday:  

Australia consumer inflation, employment change, unemployment change, China house prices, industrial output, retail sales, GDP, Japan tertiary industrial activity, Germany wholesale price index, U.K. Claimant count, ILO unemployment rate, employment change, average weekly earnings, Italy CPI, U.S. New York Fed manufacturing, import prices, export prices, initial jobless claims, continuing jobless claims, Philly Fed manufacturing index, industrial production, capacity utilization, manufacturing output, NAHB market index and Canada ADP employment change.