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USD Analysis and Talking Points

  • Dovish Fed Powell Downs Dollar
  • Language Changed on Inflation Assessment

See our latest Q3 FX forecast to learn what will drive the currency through the quarter.

Dovish Fed Powell Downs Dollar

Fed Chair Powell provided a somewhat more dovish than expected speech, having that since the June FOMC meeting, uncertainties have continued to dampen the economic outlook, highlighting that growth appeared to have moderated in Q2, while momentum has slowed in major foreign economies in recent months.

On the inflation outlook, the Fed Chair noted that there are risks that weak inflation could be even more persistent than the Fed is currently anticipating. Notice that this is a notable change in language from previously stating that weak inflation is “transitory”, now seeing weak inflation as “more persistent”.

Market Response

In reaction to the dovish commentary, the USD dropped across the board alongside US treasury yields, while gold jumped back about $1400 with US equities also surging as Fed Chair Powell sets the stage for incoming rate cuts. Going forward the focus will be by how much will the Fed lower interest rates. As it stands, money markets are calling for 65bps worth of easing by the end of the year, while for the July meeting there is a near 10% chance of a 50bps cut.

USD Price Chart: 1-minute time frame (Intra-day)

USD Spikes Lower as Dovish Fed Powell Sets Stage for Rate Cuts

Chart by IG

--- Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX