US Dollar Nurses Losses after Powell’s Statement

The US dollar was nursing losses earlier today, Monday, August 30, following US Federal Reserve System’s Chairman Jerome Powell managing to flag an exit from emergency monetary policy settings. The greenback has kept almost multi-week lows as well.


We want to share this foreign exchange-related report with our readers, especially those trading the US dollar. We believe this news can help them stay guided as this trading week starts.


According to the August 30, 2021 report posted online by finance news outlet Yahoo! Finance, the US dollar had plummeted broadly last Friday, August 27. Plus, it fell to a two-week low on the euro.


The cause of this development was Powell laying out a slower-than-anticipated path to interest rate hikes. The Federal Reserve Chair managed to flag the United States’ departure from emergency monetary policy settings that neither suggested a rush to raise interest rates nor spooked the markets.


In his speech, the Fed chairman remarked that it could be suitable to begin reducing asset purchase speed this 2021, with employment as the determining factor. Nevertheless, Powell pointed out that aspect would not directly signal higher interest rates.


He explained that hiking would require the economy to pass a substantially stricter and different test. Traders sold US dollars and latched on to the wiggle room in the interest rates outlook.


Meanwhile, the US Treasury yields dropped, with the US dollar index concluding last Friday with a 0.4-percent loss and today picking up more or less where it left off at 92.670. As for the euro, it surged 0.4 percent to merely above US$1.18, and it stayed there during today’s trading sessions.


The Japanese yen steadied at 109.78 yen per US dollar and crept through its 20-day moving average. The Australian and New Zealand dollars also hung on to sizeable gains last Friday.


The Kiwi punched through its 50-day moving average. Both New Zealand and Australian dollars logged weekly increases of over 2 percent.


This percentage is their largest on the US dollar in about ten months. The Kiwi last bought US$0.7007 and the Aussie US$0.7313, although both stay a fair way below chart resistance levels.


The Aussie was around US$0.7426 while the Kiwi was US$0.7100. As for the pound sterling, it increased 0.4 percent on Friday, and today, it held at US$1.3764.


The Canadian dollar held Friday gains. The oil-exposed Norwegian krone tracked oil prices higher to reach a seven-week high of 8.6971 kroner per US dollar as Hurricane Ida pounded the US state of Louisiana, shutting production wells.


We think Fed Chair Powell’s statement heavily impacted the recent losses involving the US dollar. We agree with ANZ analysts.


They noted that the Fed chief was not precise on the tapering’s timing. The ANZ analysts also remarked that Mr. Powell’s reiteration that tapering is separate from a decision to raise interest rates implied that there could be a gap.


They added that such a situation had, in turn, seen the market taking a Goldilocks perspective of the US central bank. It comprises stimulus getting reduced, yet not so fast as to snuff out the recovery.


With this development, we recommend our readers, who will be trading in US dollars, to monitor the upcoming developments this week.


We also suggest they wait for reports regarding the US labor data to be released this coming Friday for the succeeding hint on the asset purchase tapering’s timing and the COVID-19 updates because these factors impact the US dollar’s exchange rate.

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