Forex today: Powell rubber stamps 25bp cut for July

Forex today was seeing a retake of shorts in the Dollar following Federal Reserve Chairman Powell's first day of his two-day testimony to Congress. Powell was advocating for a rate cut which weighed on both the greenback and US yields. He argued that the jobs report has done little to change the Fed's outlook and that was essentially taken by the market as a rubber stamp for at least a 25pb cut this month as investors get set of r the U.S. Consumer Price Index due today in New York's session. The FOMC Minutes did not give anything new to trade from.

"First, he restated the FOMC’s view from the June meeting that the Fed would ‘act as appropriate to sustain the expansion’, and that ‘the case for a somewhat more accommodative monetary policy had strengthened’ for ‘many’ FOMC members. He added that ‘since then (…) it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook’.

As well as reiterating that ‘inflation pressures remain muted’, meanwhile, he gave this a further dovish twist by saying ‘there is a risk that weak inflation will be even more persistent than we currently anticipate’. "

Analysts at ABN Amro explained. 

FOMC Minutes and key points

Then came along the FOMC Minutes. Prior to the Minutes. The minutesessentially repeated what Powell already said in his testimony earlier today.

  • A rate is warranted in the near term.
  • Could be appropriate if incoming data showed continued deterioration.
  • Growth and inflation risks are now weighted to the downside. 
  • Many Fed officials saw stronger rate cut case of mid-rising risks.
  • Many Fed officials in June saw risks weighted to the downside.
  • No decision was taken at the June FOMC on standing repo facility.
  • Several officials didn't yet see a strong rate cut case.
  • Many officials sought more Fed accommodation warranted near-term.
  • A few Fed officials saw rate cut risking financial imbalances.
  • Several officials sought near term cut as a cushion for shocks.
  • Many saw inflation expectations inconsistent with 2% goal.
  • Only a couple of Fed policymakers favoured cutting interest rates at June meeting.
  • Many participants said growth and inflation risks had shifted notably in the weeks ahead of the meeting and were now weighted to the downside.
  • Officials focused on global risks and discussed at some length salt business investment data from the 2nd quarter.

In other news, the Bank of Canada, as widely as expected, the bank held steady at 1.75% as fully expected but sounded slightly less upbeat on growth where the bank focused on the impact of protectionist trade measures. 

Currency action

  • EUR/USD climbed from 1.1215 to 1.1260, ending the day at 1.1250. 
  • USD/CAD was subject to bears selling on the BoC decision and optimism, while offered by the Powell outcome, dropping half a Loonie to 1.3080.
  • USD/JPY dropped from 108.95 to 108.35 and was also weighed by ongoing uncertainties on the geopolitical front. 
  • AUD/USD rallied despite the dovish RBA sentiment, finding relief on the dovish Fed rhetoric. The pair travelled between 0.6920 to 0.6960.
  • NZD/USD similarly rallied and it dod so from 0.6595 to a high of 0.6657. 

As for the yields, the US 2-year treasury yields fell sharply in response to Powell, from 1.92% to 1.82%. The 10-year yields fell from 2.10% to 2.04% and markets are now pricing 32bp of easing at the July meeting which is up from 27bp yesterday.

Key notes from Wall Street 

Key events coming up

Analysts at Westpac noted forthcoming events for Asia:

  • Australia’s housing market remains a hot topic but there should be limited interest in May housing finance approvals (11:30am Syd/9:30am Sing/HK), given that the month includes a surprise federal election result where tax breaks on investment housing were proposed and of course pre-dates two RBA rate cuts. Given soft industry data, Westpac looks for -1.5%mth; the median forecast is -1%.

  • In the NY morning, RBA deputy governor Debelle speaks via video conference at the FX Week USA conference.

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.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD surges above 1.1100 as Trump announces steps against China

EUR/USD is trading above 1.1100, up on the day. President Trump said he orders companies to search Chinese imports for drugs. Earlier he criticized Powell's lack of action. 


GBP/USD jumps above 1.2250 on USD weakness

GBP/USD is trading close to the monthly highs above 1.2250 as the US dollar falls following Powell's hint of cutting rates and Trump's angry response. 


USD/JPY plummets to ten-day lows below 106 as Trump goes berserk on Twitter

The USD/JPY came under strong selling pressure in the last hour and erased nearly 100 pips as US President Donald Trump's latest rant on Twitter forced investors to seek refuge and ramped up the demand for safe-haven JPY. 


Gold gains more than $30, eyes 2019 highs on Trump’s tweet

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged over the last hours, leading to a rally in the yellow metal. 

Gold News

Powell powerless against Trump's trade wars – US braces for recession, USD set to move

"The most powerful central banker in the world" – is how we and others characterize Fed Chair Jerome Powell. While that may be true – monetary policy is reaching its limits – especially in the face of a trade war.

Read more