USD Rebounds on Powell’s inflation is transitory comment

The FOMC press conference provided a key reversal for the dollar and risk assets.  Fed Chair Powell’s comment that some transitory factors may be at work in inflation and that it will pick up triggered massive dollar buying.  The dovish statement quickly became yesterday’s news after inflation appears to be transient for the Fed.  Fed fund futures rate cut expectations for the September meeting fell from 50% to 39% following the comments on inflation.

Powell’s press conference did not deviate much from recent Fed speak.  Current policy is appropriate and on balance, financial vulnerabilities are moderate.  Regarding the President’s tweets about calls for rate cuts or more QE, Powell noted, “We don’t consider short-term politics in our decisions.”  Powell sees no strong need to move interest rates either way and we should not be surprised if we do see an uptick with inflation in the coming months that rate cut calls will fade even further.  Expectations are at 60% for the Fed to cut rates at the December meeting.

On the economy, Powell dismissed the weakness shown in this morning’s ISM reading and stated it was positive and shows modest growth.  He expects consumer and business spending to support growth this year.

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Ed Moya

Ed Moya

Senior Market Analyst 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 geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. 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 TradeTheNews.com, 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, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya