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Fed Quick Analysis: Dollar can continue rising as Powell dismisses Trump and markets

  • The Fed raised rates and made only small downgrades to language, forecasts.
  • They dismiss political pressures, market expectations.
  • There is room for further rises for the USD, at least until Powell changes his mind.

The Federal Reserve raised the interest rate to a range of 2.25-2.50% as expected. They also remain quite optimistic. The dot-plot was downgraded from three to two hikes in 2019, but well above half a hike that bond markets foresaw. That is far from a dovish hike.

In addition, the statement remains upbeat. The central bank continues seeing some further gradual rate hikes and sees risks as roughly balanced. No voting member dissented. 

In the immediate reaction, the US Dollar gained ground, paring its losses. Stocks pared their losses

Fed Chair Jerome Powell did say there are undercurrents that require monitoring, mentioning lower global growth and saying there is growing uncertainty. He also stressed the importance of data. Nevertheless, the outlook remains positive and rates should rise, even if with more patience. 

Patience, no pressures

When asked about political considerations and market pressures, Powell said they are working according to the mandate they have from Congress, totally ignoring the President. Donald Trump repeatedly urged the Fed not to raise rates 

What about markets? Powell did not higher volatility in financial markets as a source of uncertainty but it did not seem to bother him too much. The focus remains on the labor market and inflation, the Fed's two mandates.

All in all, the Fed and Chair Powell see the glass more than half full and will continue raising rates as long as jobs and prices look good. 

As it will take the central bank time to change its mind, it will also take the greenback time to change its mind. There is room for further gains for the greenback until we hear otherwise from the Fed. 

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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