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US Dollar, Stocks Eye Powell Testimony as Trade Talks Stumble

US Dollar, Stocks Eye Powell Testimony as Trade Talks Stumble

2019-11-14 04:00:00
Dimitri Zabelin, Junior Currency Analyst

US Dollar, Stock Markets, Fed Chairman Jerome Powell, US-China Trade War – TALKING POINTS

  • US Dollar eyes Powell second Congressional testimony
  • What were some of the key takeaways from his outlook?
  • Stock markets cautiously eye shaky US-China trade talks

Learn how to use politicalrisk analysis in your trading strategy!

The US Dollar along with equity markets may be in for another tumultuous day ahead of Fed Chairman Jerome Powell’s second consecutive Congressional testimony as US-China trade talks continue to slip. Prior to his address to legislators, US CPI data printed mixed readings, and while core inflation did fall, it still remains above the Fed’s 2 percent target.

Fed Chairman Jerome Powell: Main Takeaways

Mr. Powell conveyed a positive outlook for the US economy and reiterated the central bank’s data-dependent approach to policy, adding that the Fed would “act appropriately” and adjust policy if the circumstances warranted it. However, he warned his audience that the central bank does not have the same room to cut rates as it had in the past, and that policymakers have to rely more on fiscal policy as a counter-cyclical measure.

The Fed Chair noted that downside risks to inflation are greater than the prospect of uncomfortably high price growth. He added that Brexit uncertainty, trade war threats and softer growth from abroad all pose a risk to the outlook and may be the primary culprits behind global disinflation. Going forward, if inflation continues to slip below the Fed’s target, officials may have to re-evaluate their stance and adjust policy accordingly.

US-China Trade War Outlook

While Powell spoke to the Congressional committee, the US Dollar, S&P 500 and crude oil all rallied, suggesting markets interpreted his outlook as more optimistic than pessimistic. The parallel rise of equities and the Greenback suggests investors have a restored faith in the fundamental outlook since the prospect of fewer liquidity provisions did not cause markets to panic and lead to a selloff in stocks.

However, shortly after Mr. Powell’s comments boosted sentiment, markets briefly pivoted after news broke that US-China trade talks have hit a stumbling block. US President Donald Trump announced that China would purchase approximately $50 billion worth of agricultural goods, though Beijing expressed trepidation in committing to an exact number until the US made it clearer that it would repeal tariffs in phases.

According to the Wall Street Journal, one Chinese official said, “We can always stop the purchases if things get worse again”. Trade negotiations between Washington and Beijing have shown to be unpredictable, and the mere fact that both sides are struggling to reach even just one agreement in a multi-sequential accord sends an alarming message to global investors.

EUR/USD, S&P 500 Futures, Crude Oil Prices – Daily Chart

Chart showing S&P 500

S&P 500 chart created using TradingView


--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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