Fed Analysis: Powell doubles down on dollar-devastating comment – more may be in store


  • Fed Chair Powell confirmed that the bar is high for raising rates. 
  • The dollar has dropped across the board.
  • More falls may be in store, even as markets await comment from Trump.

Technical traders are often looking for a double-top or double-bottom to confirm a line of resistance or support. Also for fundamental traders, sometimes repetition is needed to trigger a move.

Jerome Powell, Chairman of the Federal Reserve, has said that he would personally raise rates only after seeing significant and persistently high inflation. That contrasts the reaction function for cutting rates seeing a change to the future outlook. 

That means that the bar for raising rates is higher than the one for cutting them. The Fed will cut before it hikes. 

Powell made similar comments in October, but the reaction was muted. Why? The Fed Chair had previously slipped unnecessary comments and his press conference after the first cut in July was considered an utter mess.

However, by repeating the statement now, markets are paying attention. The US dollar has tumbled down, with EUR/USD hitting a six-week high at 1.1144 at the time of writing. GBP/USD is on the verge of hitting fresh seven-month highs above 1.21 and USD/JPY is on the back foot.

There may be more in store

Why? Markets tend to react in waves – the initial move is followed by a response from traders in Tokyo, then from European traders, and finally more action after US traders slept on the news.

However, the euro is awaiting the European Central Bank's decision and the pound is awaiting the UK elections.

In the bigger picture, investors are still waiting for President Donald Trump's decision regarding slapping new tariffs on China. Trump – that has been bashing the Fed – may be pleased by the market reaction and may opt to add fuel to the first by refraining from hitting Beijing with levies.

That may weigh further weigh on the safe-haven dollar – but not against the yen. It is always important to remember that Trump is unpredictable. 

Overall, the dollar may have more room to fall. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD: Buyers struggle for follow-through, focus on Fed

EUR/USD buyers are struggling to find follow-through, having successfully defended the psychological support at 1.10 on Tuesday with a bullish hammer candle. The Fed may validate the renewed expectations for a 2020 rate cut. 

EUR/USD News

GBP/USD: Modestly flat above 1.3000, Huawei talks in the spotlight

GBP/USD sellers catch a breath after four consecutive days of declines. The UK’s favor for the Chinese tech giant negatively affects its friendship with the US. Brexit headlines keep calm while BOE readies for the decision.

GBP/USD News

Federal interest rate preview: Stable policy and an uncertain future

The course of the American economy has not altered since the previous FOMC meeting on Dec last year. 4Q growth is expected to be 2.1% when the preliminary figures are released by the Bureau of Economic Analysis on Thursday.

Read more

Gold: Bulls looking for a discount in $1560s

Gold top in the making with a weekly shooting star and weekly divergence. The price of gold has been found floundering between 1580 and the 1560s following a surge at the start of the year to the highest levels since March 2013 at $1,611.

Gold News

USD/JPY fills Monday's bearish gap ahead of Fed interest rate

USD/JPY has filled the gap created by Monday's negative open. Coronavirus fears have subsided in the last 24 hours, allowing recovery in USD/JPY. The respite could be short-lived if the Fed sounds dovish, sending the US dollar lower. 

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures