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US Dollar Dives to Session Lows after Trump Meets with Fed Chair Powell

US Dollar Dives to Session Lows after Trump Meets with Fed Chair Powell

2019-11-18 16:25:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Market Alert: Fed Chair Powell Meets with US President Trump

  • The Federal Reserve announced the results of an unscheduled meeting between Fed Chair Jerome Powell and US President Donald Trump at the White House on Monday morning.
  • The Federal Reserve noted that Fed Chair Powell said monetary policy will be set “to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.
  • The US Dollar has slid as speculation has arisen that the US-China trade deal may be losing traction.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

Unscheduled Trump-Powell Meeting Shakes Forex Markets

The US Dollar is under pressure this morning amid surprise news of a meeting between US President Donald Trump and Fed Chair Jerome Powell. Here’s what the Federal Reserve had to say about the meeting:

At the President's invitation, Chair Powell met with the President and the Treasury Secretary Monday morning at the White House to discuss the economy, growth, employment and inflation.

Chair Powell's comments were consistent with his remarks at his congressional hearings last week. He did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that bears on the outlook for the economy.

Finally, Chair Powell said that he and his colleagues on the Federal Open Market Committee will set monetary policy, as required by law, to support maximum employment and stable prices and will make those decisions based solely on careful, objective and non-political analysis.

Implications for US-China Trade War Phase 1 Deal

With the US-China trade war Phase 1 deal on the rocks, market participants are taking the news as a sign that the meeting was intended to re-orient everyone's bearings in the event that Phase 1 of the US-China trade deal falls apart in a more public manner.

To this end, US President Trump’s persistent chiding of Fed Chair Powell’s refusal to cut interest rates even lower comes to mind. The last line of the Federal Reserve’s statement is crucial: Fed Chair Powell “will make those decisions based solely on careful, objective and non-political analysis."

It sounds like the Fed is pushing back on further rate cuts for the sake of cushioning the economy from the US-China trade war pre-2020 election. Bad news may be on the horizon regarding the US-China trade war Phase 1 deal.

DXY INDEX TECHNICAL ANALYSIS: 1-minute CHART (NOVEMBER 18, 2019 INTRADAY)

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Following the news report, the US Dollar (via the DXY Index) dropped from its already-session lows at 97.82 to fresh session lows at 97.68. At the time this note was written, the DXY Index was back at 97.70. The driving factor here appears to be US Treasury yields, which turned lower on the day, as Fed rate cut odds pulled forward the timing of the next 25-bps rate cut, from April 2020 to March 2020.

Read more: Weekly Crude Oil Forecast: Energy Prices Beat Back Macroeconomic Headwinds

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

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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