Mon. Oct 18th, 2021

If there was any doubt that Federal Reserve Chairman Jerome Powell’s comments, delivered virtually at the Jackson Hole symposium on Friday, were interpreted as bad, the dollar’s ​​reaction should clear up any doubts.

The US greenback, as measured by the ICE US Dollar DXY index,
-0.41%,
it fell sharply lower and fell 0.4%, on Friday’s last check, and fell 0.9% a week, according to FactSet data. A weekly slide of 0.9% would represent the sharpest fall in the index, which measures the greenback against half a dozen coins, since the week ended May 7, when it fell 1.2 %.

The dollar has been trading around its lowest level since Aug. 16, last checked on Friday.

“The U.S. dollar has released 20 immediate pips against most of its major rivals, with the U.S. dollar index hitting a 10-day low below 92.80,” wrote Matt Weller, chief of FOREX.com and City Index, in a note following Powell’s comments.

On Friday, Fed Chairman Jerome Powell said he advocates starting in 2021 to reduce central bank bond purchases implemented during the worst financial market disruptions in 2020, but said he does not expect the central bank to increase reference interest rates, which will currently soon be between 0% and 0.25%.

In addition, he seemed to point out that the Fed was in no hurry to raise interest rates.

Powell’s comments imply Wall Street traders that the low interest rate regime supported by the COVID-19 pandemic could continue a bit longer, which is a big downside for dollar traders, at least in the short term.

The Fed chief’s statements suggest that perhaps more room will be given to digest more data as it moves toward normalizing the central bank’s monetary policy.

“Given Powell’s current emphasis on the labor market, upcoming non-farm payroll reports, including next Friday’s, will be particularly significant in determining the timing and pace of workforce reduction plans. center bench, ”Weller wrote.

Friday’s movements in the dollar also come after the index that touched rose weekly by 1.1%, the highest since the period ended June 18, which brought the currency to a nine-month high. .

However, not everyone thinks the currency recession will last.

“However, we believe that this will show a temporary setback and that the greenback will appreciate a little more in the last months of the year as the prospects for the normalization of Fed policy and yields on northern bonds -Americans rebound more than those in other major economies, “Jonas Goltermann, a senior market economist at Capital Economics, wrote in a research note Friday.

Capital economy

Goltermann noted a rebound in Treasury note yield to 10-year benchmark TMUBMUSD10Y,
1.313%,
which fell around 1.32% on Friday and a strong labor market, as possible impulses for a possible rebound in the dollar.

The dollar fell on Friday as the Dow Jones Industrial Average DJIA,
+ 0.69%,
the S&P 500 SPX index,
+ 0.88%
and the Nasdaq Composite COMP,
+ 1.23%
it has ended at or near historical highs.

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