The dollar lost ground on Powell’s comments with the Dollar Index at 2-week lows [Video]

The Euro held a firm tone in early Europe on Wednesday, but was unable to extend gains and gradually retreated into early New York. There was a further paring of short dollar positions into the Federal Reserve policy decision while a more defensive tone surrounding risk appetite also helped underpin the US currency. In this environment, EUR/USD retreated back below 1.1800 at the Wall Street open with choppy and indecisive trading ahead of the Fed statement.

The Federal Reserve held interest rates at 0.25% following the latest meeting and made no changes to the asset-purchase programme, both decisions in line with market expectations and by unanimous votes. There were no updated economic and interest rate forecasts at this meeting.

According to the statement, indicators of economic activity and employment have continued to strengthen while areas most affected by the pandemic have improved, but not fully recovered. Inflation has risen, but this was still seen as largely reflecting transitory factors. The statement noted that the economy has made progress towards the goals and progress will continue to be assessed at forthcoming meetings. There was indecisive trading in immediate response to the statement.

Chair Powell stated that the Fed is prepared to make policy adjustments if the path of inflation is materially and persistently beyond target. He added that progress towards taper targets and speed of taper was discussed at the meeting, while purchases would continue until progress is achieved. He added that the economy is still a long way from making further significant labour advances with the economy a long way from a hike in interest rates.

He was relatively calm over the economic impact of the Delta variant and the dollar dipped lower following Powell’s rhetoric with EUR/USD advancing to near 1.1850. The dollar remained on the defensive in early Europe on Thursday with EUR/USD just above 1.1850 as commodity currencies posted net gains.