Fed Quick Analysis: Powell refuses to stop the stock party, dollar may suffer some pressure


  • The Federal Reserve has left its policy unchanged but expressed concerns.
  • Acknowledging the recent weakness and inflation concerns show the bank remains dovish.
  • Amid market exuberance, the Fed allows stocks to party and the safe-haven dollar to decline.

Trying not to rock the boat – that is often the role of central banks – but the seas are storming. The financial world is fascinated with wild moves in stocks as Gamestop (NASDAQ: GME) and epic battles between retail traders and hedge funds.

Jerome Powell, Chairman of the Federal Reserve, is undoubtedly aware and could have cooled down equity markets by focusing on an upbeat outlook for the post-pandemic world. The US has recently ramped up its immunization program and the Fed's forecasts for the second half are upbeat. 

Instead, the Fed remained cautious and opted to focus on the recent weakness – and there are figures to worry about. The US lost 140,000 jobs in December and Retail Sales declined in November and December – the peak of the shopping season. 

The Fed has two mandates – employment and inflation. On the latter, the bank's statement also leans to the dovish side, by saying that price pressure will likely remain weak until the end of the year. Some market participants see a recovery in consumer prices after the summer. The Fed doesn't, at least not now.

By seeing the glass half-empty rather than half-full – even if the intention is mainly not to commit to anything – has market implications. It gives stocks more room to rise, hoping that the Fed continues pumping money to the economy, as much as needed. 

For the dollar, extending the bank's bond-buying scheme and refraining from any tapering means weakness in the greenback. Contrary to stocks, the party of other currencies may be uneven. The European Central Bank has been expressing growing concerns about the appreciation of the euro and has also reportedly blamed the Fed. Moreover, the ECB may even cut interest rated deeper into negative territory – something the Fed is unwilling to do. 

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.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD stabilizes after US retail sales smash estimates

EUR/USD has bounced off its lows but remains below 1.20 after US retail sales smashed estimates with a 9.8% leap. Moreover, jobless claims tumbled to 576,000. Markets are digesting the big bulk of data.

EUR/USD News

GBP/USD rises toward 1.38 ahead of US data, Brexit meeting

GBP/USD is edging up toward 1.38, reversing its previous falls in tense trading ahead of all-important US retail sales. A Brexit-related meeting on Northern Ireland is also eyed. 

GBP/USD News

ETH seizes the spotlight as BTC and XRP contemplate retracement

Bitcoin price shows a correction in play after the MRI flashed a red ‘one’ cycle top signal. Ethereum shows a strong trend continuation while the rest of the market experiences a minor pullback. 

Read more

XAU/USD closes in on key $1,750 resistance

XAU/USD rises on Thursday supported by falling US T-bond yields. Gold faces a resistance at $1,750 in the near term. A downward correction to $1,740 is likely if XAU/USD fails to clear $1,750.

Gold News

Breaking: Citi (C) beats on EPS and revenue, investment banking booms!

Citigroup (NYSE:C) reports Q1 2021 earnings showing strong growth in investment banking following on from Goldman smashing it on Wednesday. Citi shares are trading $74.20 in pre-market up nearly 2%.

Read more

Majors

Cryptocurrencies

Signatures