Title: USD Strengthens Following Powell’s Comments, Traders Shift Focus to Upcoming US CPI Report
Originally written by Investing.com and published on Mitrade
Article link: https://www.mitrade.com/insights/news/live-news/article-1-1111292-20250910
The US dollar strengthened on Monday following comments from Federal Reserve Chair Jerome Powell, which signaled continued vigilance toward inflation. Powell’s remarks at a policy panel attracted close attention from forex traders, already on edge in anticipation of the upcoming U.S. Consumer Price Index (CPI) data scheduled for release on Wednesday. This upcoming data could play a major role in the Fed’s policy outlook as markets reassess interest rate path projections for 2024.
Here’s a comprehensive breakdown of the current forex market landscape, the drivers behind the dollar’s momentum, and what traders should watch moving forward.
Summary of Powell’s Comments and Their Market Impact
Federal Reserve Chair Jerome Powell, speaking at the International Monetary Fund (IMF) annual research conference in Washington last Thursday, offered a measured take on the status of U.S. inflation. Though Powell acknowledged the strides made in curbing inflation, he also emphasized that monetary policy might require further tightening if inflationary pressures persist.
Key takeaways from Powell’s remarks include:
– Inflation remains well above the Federal Reserve’s long-term target of 2%, requiring sustained attention.
– The current benchmark interest rate is deemed restrictive, but there’s openness to further hikes if warranted.
– The Fed is committed to reducing inflation “sustainably down” to target levels.
– There is recognition that monetary policy results operate with a lag, but patience cannot lead to premature easing.
Following these comments, traders scaled back speculations of cuts in the federal funds rate early in 2024, pushing the U.S. dollar higher across major currency pairs.
Details on Currency Movements and Market Reactions
1. DXY Index Performance:
– The U.S. Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, climbed to an intraday high of 105.86.
– It later settled at around 105.84 in late trading Monday, reflecting a solid rebound from recent losses.
2. EUR/USD:
– The euro fell against the dollar, dropping from highs near 1.0740 and retreating to 1.0695.
– Uncertainty over European Central Bank policy actions amid a slowing eurozone economy is weighing on sentiment.
– Lagarde’s recent comments suggest a cautious approach, limiting euro upside even as inflation trends downward.
3. GBP/USD:
– The British pound retreated after reaching resistance near the 1.2245 mark.
– The pair dropped to 1.2226 as markets reassessed the resilience of the UK economy and the likelihood of further Bank of England rate hikes.
– BOE policymakers have turned increasingly cautious amid signs of weakening economic activity.
4. USD/JPY:
– The dollar rose against the yen, hitting levels just above 151.80 during intraday trading before paring gains slightly.
– Intervention threats from Japanese authorities have done little to stem yen weakness, as the Bank of Japan remains the most dovish among major central banks.
5. Commodity-linked Currencies:
– The Australian and New Zealand dollars weakened as risk sentiment cooled and commodity prices lacked support.
– AUD/USD fell to 0.6370 after testing resistance at 0.6415 earlier in the session.
– NZD/USD slipped to 0.5893 amid subdued interest in risk assets and less aggressive Reserve Bank of New Zealand (RBNZ) expectations.
Forecasts Hinged on Upcoming US CPI Data
The most critical near-term catalyst for forex markets is the upcoming U.S. Consumer Price Index (CPI) data, due on Wednesday. This report is expected to have a significant impact on the Federal Reserve’s rate outlook.
Market consensus forecasts
Explore this further here: USD/JPY trading.