Powell Analysis: The five dovish comments that down the dollar for longer

  • Federal Reserve Chair Jerome Powell added to the dovish statement with clear messages. 
  • Denying tapering, explaining inflation and saying the economy has a long way to go are some of the factors. 
  • His words may further push the dollar down.

New highs for EUR/USD – seeing the currency pair hold trade above 1.2120 is everything technical traders need to understand that the Federal Reserve is dovish. Is the pair overbought or will it continue higher? Here, understand Chair Jerome Powell's comments provides reasons to continue seeing the dollar fall and EUR/USD to rise.

1) Not even thinking of tapering: "It is not time to start talking about tapering" – bond-buying will continue at $120 billion/month and printing more dollars means a devaluation of the currency. That was the first question and Powell's straight answer is the main reason for the greenback's fall. 

2) Higher housing prices? Blame builders: The Fed Chair acknowledged that real-estate is on the rise but that is due to lack of available inventory and not only cash in people's pockets. He stressed that the situation now is substantially different from the one seen ahead of the global financial crisis. 

3) Inflation speech: Putting "transitory" in regards to inflation in the statement was only the first step. Responding to a reporter's question, Powell drew out his prepared remarks and explained in-depth that higher prices are due to base effects – worth 1% annually – and also bottlenecks. While such supply chain issues may last for an uncertain amount of time, he stressed that they are unlikely to last as businesses will adjust. 

4) Millions out of work or retired: : On this mandate – which is now the Fed's primary one – he stressed that 8.4 million people remain out of work. Moreover, Powell mentioned that many have officially retired, and they may return to actively looking, and eventually finding a job. Overall, the message is that there is substantial slack, meaning no hurry to raise rates

5) Economy's long and winding road: Circling back to the big picture, the Fed Chair repeated the mantra that the Fed will only move when "substantial progress has been made" without providing clear details. However, he also added that there is a "long way to go." 

Overall, doves are far from crying, at least not now. The stock market party and the dollar sell-off may have a "long way to go." 

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