Dollar weakens after gloomy Powell comments on US economy

The dollar fell on Wednesday after Federal Reserve Chairman Jerome Powell struck a downbeat tone in congressional testimony, saying trade uncertainties and concerns about the global outlook continued to exert pressure on the U.S. economy.

The greenback hit session lows versus the euro and yen after Powell’s comments, which reinforced expectations the Fed will cut interest rates for the first time in a decade at its next monetary policy meeting later this month.

In prepared remarks to a congressional committee, Powell said the Fed stands ready to “act as appropriate” to sustain a decade-long expansion.

He also contrasted the Fed’s “baseline outlook” of continued U.S. growth against a considerable set of risks – including persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over just how long the Trump administration’s trade war with China and other countries will last and how intense it will become.

“There is now economic evidence that the outlook for the U.S. economy is not that great,” said Juan Perez, senior currency trader at Tempus Inc in Washington. “Ultimately what that means is that the Federal Reserve will need to intervene. … And the dollar will get hurt as a result.”

Expectations for a 50-basis-point rate cut at a Fed meeting later this month have evaporated, but investors still expect a 25-basis-point cut due to weak inflation and worries about growing business fallout from the U.S.-China trade war.

In midmorning trading, the dollar index slid 0.3% to 97.155 . Against the yen, the dollar fell 0.3% versus the yen to 108.657, dropping against the Swiss franc to 0.9894 franc . The euro, meanwhile, rose 0.4% to $1.1248.

“If we see softer-than-expected inflation data tomorrow and if the advance second-quarter GDP (gross domestic product) reading comes in well below 2.0% on July 26th, we will see the case grow for the first cut to be a 50-basis-point one,” said Edward Moya, senior market analyst at OANDA in New York. “Currently, markets see one cut in July and it’s almost a coin flip for another one in September.”

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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 senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street 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 CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya