The US dollar surged on Tuesday following comments from Fed Chair Jerome Powell, who indicated it would be appropriate to consider wrapping up the bank's QE taper a few months sooner. Powell, speaking before the Committee on Banking, Housing, and Urban Affairs of the US Senate alongside US Treasury Secretary Janet Yellen, added that the Fed would discuss speeding the QE taper at the 15 December FOMC meeting. 

Powell's remarks

Powell also said that it was time to retire the word "transitory" as a description of inflation in the US. Many analysts will see this as opening the door to earlier rate hikes, as the characterisation of inflation as transitory had previously been used as an excuse to look through high inflation numbers and continue to pledge that they would hold interest rates low for a long time. 

On inflation, he said that the risk of higher inflation had increased, that price increases have spread more broadly and that the risk of high inflation could undermine the Fed's efforts to get the US back to full employment. Generally, Powell sounded bullish on the economy and labour market and his tone suggested he is much more concerned about controlling inflation rather than providing further support to the economy. 

Finally, on the Omicron variant, Powell said that the Fed can only assess its impact on the US economy once more data become available, which may not emerge for another week or 10 days. For now, he added, Omicron is seen as a risk and is not baked into the Fed's forecasts. 

Dollar surges

Powell's remarks were interpreted hawkishly and, as a result, the US dollar and US yields (particularly real yields and short-end nominal yields) shot higher. The DXY, which had been trading around 95.50 prior to Powell's remarks, at one point rallied to the north of the 96.50 level, a more than 1.0% turnaround from prior session lows at the time. Profit-taking has since seen this gains moderate somewhat, with the DXY now trading around 96.40, where it trades higher on the day by about 0.2%. 

For reference, US 2-year yields saw a more than 10bps surge from prior session lows under 0.45% to above 0.55% and the 5-year TIPS yield also surged more than 10bps to above -1.70% from previously under -1.80%. 

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended content


Recommended content

Editors’ Picks

AUD/USD hovering around 0.7050 amid the greenback’s sell-off

AUD/USD hovering around 0.7050 amid the greenback’s sell-off

The Australian dollar shrugged off negative local data and reached a fresh weekly high against its American rival at 0.7072. The pair preserves its strength, despite the poor performance of global indexes indicating prevalent fear.

AUD/USD News

EUR/USD retains gains and hovers near 1.0600

EUR/USD retains gains and hovers near 1.0600

EUR/USD peaked at 1.0607, now trading in the 1.0580 price zone. The rally was all about the broad greenback’s weakness despite demand for safety continues. Soft US data added to the bullish case.

EUR/USD News

Dollar’s sell-off underpins gold

Dollar’s sell-off underpins gold

Gold is up to on Thursday, trading above $1,840 after hitting an intraday high of $1,849.18. The dollar changed course after soaring on Wednesday and is in franc decline across the FX board. However, action in stock markets is choppy. 

Gold News

Cardano is still on pace to retest $0.40, but bears shouldn't get too excited

Cardano is still on pace to retest $0.40, but bears shouldn't get too excited

Cardano is on professional traders' urgent watchlist as the digital asset could enter a mid-term bottom in the $0.45 zone before rallying upwards towards $0.60. ADA, like several cryptos, has been in a steep bear rally, which demands the need for balance and proportion.  

Read more

Warning signs in China's economic outlook as COVID-19 spreads

Warning signs in China's economic outlook as COVID-19 spreads

New variables both within and outside of China in 2022 have placed the country's economy under new pressure. In the first quarter, its economic growth rate was only 4.8%, which was 0.7 percentage points lower than the annual economic growth target of 5.5%.

Read more

Forex MAJORS

Cryptocurrencies

Signatures