Dollar drifts lower as Powell confirms patience

A successful testimony is one that does not deliver a major market move.  Fed Chair Powell delivered a clear message that Fed policy will remain data dependent as the outlook changes.  He was successful in clearly explaining the he is not pre-judging what will be the next move in policy.  Powell’s message remained consistent with the dovish pivot he gave in January.

The current implied probabilities still show no changed in policy throughout 2019.  With a slight growing consensus for the next move to be a cut in 2020.  The US dollar was slightly lower against the high-beta currencies following his testimony.  The yield on 10-year Treasuries fell 2 basis points to 2.643%.


Sees favorable economic outlook with some cross-currents. Effects from government shutdown were modestly negative.  Highlights that some data has softened and still point to spending gains this quarter.


Reiterated inflation is muted and close to 2%.  Powell noted they are studying if they could allow inflation to run hotter after a sustained period of subdued price pressures.


Pleased wages have moved up and that the Fed is seeing signs of stronger growth.


Reiterates the Fed is ready to adjust the balance sheet normalization if needed.  The balance sheet size will come from the demand for Federal Reserve liabilities such as currency and bank reserves.


Powell did not take the bait and declined to comment on Yellen’s criticism of President Trump. Regarding the Fed’s independence, he maintained the standard position that it is needed to provide transparency so Americans and can understand their policy actions and hold them accountable.


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Ed Moya

Ed Moya

Senior Market Analyst - The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geopolitical events and monetary policies around the world. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC and Bloomberg, and is often quoted in leading publications including the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University.
Ed Moya