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US Dollar Higher as Fed Chair Powell Sticks to Script on Gradual Hikes

US Dollar Higher as Fed Chair Powell Sticks to Script on Gradual Hikes

Christopher Vecchio, CFA,

Talking Points:

- Fed Chair Jerome Powell continues to sound hawkish, supporting further policy tightening in the face of a steadily improving US economy in 2018.

- The Senate Banking Committee questioned the Fed Chair over the US-China trade war and tariffs, which were deemed to be a net-negative for the US economy.

- DXY Index on pace for highest close of July thus far following Fed Chair Powell on Capitol Hill.

See our longer-term forecasts for the US Dollar, Euro, British Pound and more with the DailyFX Trading Guides

The US Dollar is hovering near its session highs in the wake of Federal Reserve Chair Jerome Powell’s testimony in front of the Senate Banking Committee. While his trip to Capitol Hill was a mostly uneventful one – indeed, nothing said could be considered much of a surprise – Fed Chair Powell has left traders feeling more bullish about the US Dollar amid signs the key policymaker is comfortable with raising rates two more times in 2018.

Noting that the US economy has grown and continues to grow at a “solid pace,” Fed Chair Powell noted that “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that – for now – the best way forward is to keep gradually raising the federal funds rate.”

The top policymaker at the Federal Reserve likewise commented on various aspects of fiscal policy, although mostly “stayed in [his] lane” as monetary policymakers ought to generally do. While proving helpful to the economy thus far, Fed Chair Powell noted that the recent changes to tax and spending policies have not fully impacted the economy yet, noting it would be difficult to anticipate “the size and timing of the economic effects of the recent changes in fiscal policy.”

With respect to ongoing trade tensions emanating from the US, Fed Chair Powell said that “it is difficult to predict the ultimate outcome of current discussions over trade policy.” However, when pressed on making general observations about tariffs and trade wars, the chief Fed policymaker was clear that the impact would ultimately be negative on the US economy.

Following the testimony this morning, Fed funds futures were pricing in 90% chance of a 25-bps rate hike in September (the third of 2018) and a 64% chance of a hike in December (the fourth of 2018). Coming into this week, odds for hikes in September and December were near 86% and 58%, respectively.

DXY Index Price Chart: 1-minute Timeframe (July 17, 2018 Intraday) (Chart 1)

Taking a cue from rising rate hike expectations, the US Dollar (via the DXY Index) rallied across the board. The DXY Index was trading near 94.96 at the time this note was written, up from 94.78 when Fed Chair Powell first started speaking. EUR/USD had dropped to near 1.1660 (-0.45% on the day), GBP/USD fell down to 1.3135 (-0.75%), and USD/JPY gained to 112.88 (+0.54%).

Read more: DXY Index Halts Losses Ahead of Powell Testimony


Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.