Original Source: FXStreet, authored by Eren Sengezer
Title of Original Article: “EUR/USD jumps above 1.1700 on Powell’s dovish words”
Rewritten and Expanded Article (1000+ Words):
Title: EUR/USD Surges Past 1.1700 Mark Following Dovish Remarks by Fed Chair Jerome Powell
Author: Adapted from a report by Eren Sengezer at FXStreet
The euro-dollar (EUR/USD) currency pair experienced a significant upswing on Thursday, breaking through the 1.1700 resistance level in response to dovish statements from the U.S. Federal Reserve Chair Jerome Powell during a press conference following the Federal Open Market Committee (FOMC) policy announcement. The pair’s move higher was largely driven by a perceptible shift in market sentiment that interpreted Powell’s remarks as an indication that further interest rate hikes may be unlikely in the near term.
This sentiment was reinforced by data releases earlier in the week and the detailed tone Powell struck when discussing the health of the U.S. economy. After weeks of fluctuating movement amid inflation concerns and tapering speculation, Powell’s cautious tone aligned with dovish expectations, prompting a dollar sell-off and enabling the euro to gain ground.
Market Reaction Overview
– EUR/USD began trading Thursday under moderate pressure, hovering near the 1.1650 level during European market hours.
– The tide shifted dramatically after Powell’s speech, with the pair rallying past the psychological threshold of 1.1700.
– The upward move was strengthened by broader dollar weakness, as traders reassessed the likelihood of imminent rate tightening.
– At the close of the U.S. trading session, EUR/USD was trading firmly above 1.1700, posting intraday gains of nearly 0.6 percent.
Key Highlights from Powell’s Remarks
During the post-meeting press conference, Fed Chair Powell struck a balanced, yet overall cautious tone. While acknowledging progress in economic recovery, he flagged concerns surrounding the Delta variant of COVID-19 and its potential effects on both labor market recovery and general economic momentum.
Powell’s key messages included:
– The U.S. economy is making “substantial further progress” toward the Fed’s goals, particularly with inflation.
– However, the labor market still requires significant improvement, slowing the timing of policy normalization.
– Inflationary spikes are seen predominantly as transitory, a narrative that supports the case for delaying interest rate hikes.
– While tapering of asset purchases is likely to begin “later this year”, the Chair emphasized that reducing asset purchases does not mean immediate tightening of policy.
These remarks had an immediate impact on market expectations. Many traders took the view that the central bank is in no hurry to tighten its accommodative stance. This led to a pullback in U.S. Treasury yields and the U.S. Dollar Index (DXY), creating an upside path for major peers like the euro.
Understanding the Dollar Weakness
The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar against a basket of six major currencies, fell from intraday highs above 93.00 to below 92.50 immediately following Powell’s press conference. Lower yields on U.S. government debt, particularly the 10-year Treasury note, added pressure to the dollar.
– Falling Treasury yields signal lower expectations for interest rate rises, reducing investor appetite for the dollar.
– The belief that the Fed will proceed slowly and cautiously with any withdrawal of monetary support undermined bullish dollar positions.
– Investors repositioned their portfolios in favor of riskier assets and sought higher returns elsewhere, contributing to dollar weakness across the board.
In addition to Powell’s dovish tone, some weaker-than-expected U.S. economic data further debunked the narrative of rapid economic overheating:
– Jobless claims came in higher than anticipated, indicating ongoing labor market difficulty.
– GDP growth for the second quarter, though robust, slightly missed expectations, raising questions
Read more on EUR/USD trading.