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. 

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