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USD Drops, S&P 500 Hits Record on Dovish Fed Minutes, Powell Testimony

USD Drops, S&P 500 Hits Record on Dovish Fed Minutes, Powell Testimony

Thomas Westwater, Analyst

Fed Chair Powell Testimony and FOMC Minutes – Talking Points

  • The S&P 500 Index hit an all-time high today as Powell testifies before congress, prefacing the FOMC minutes showing a continued dovish tone from Fed members
  • Members saw a strengthening case for rate cuts in the near future, although several members remain hawkish
  • Check out the US Dollar Q3 forecast

The markets are receiving plenty of information to digest today with the Federal Reserve releasing minutes from its June FOMC meeting which follows commentary from Chair Powell testified before Congress this morning. The minutes show FOMC member concern over soft economic data such as the weak jobs report from April, weakening indicators for business confidence and spending, decreased manufacturing activity and the ongoing trade tensions - mainly between China and the US. However, not all members are completely convinced that rate cuts are necessary at this time as several members voiced that they did not see a strong case for rate cuts when the Fed met last this past June.

S&P 500 Index vs Gold Price Chart

SPX

Today’s minutes were prefaced by Jerome Powell testifying in front of the House’s Financial Services Committee this morning as Powell answered questions from members of congress on the Federal Reserves current outlook for the economy. US equity markets got off to a bullish start to the day as the S&P 500 Index moved to make an all-time high after hitting the 3,000 mark - a remarkable level that traders have been optimistically eyeing over the past months. Powell’s dovish comments also helped propel gold prices today with XAUUSD hitting $1,400.

S&P 500 Index and DXY US Dollar Index Price Chart

DXY

The US Dollar dropped as Powell noted crosscurrents in the economy, dimminng the view of the Federal Reserve and increasing the probability of future rate cuts. The main concern being the ongoing trade tensions between the US and China, however Powell said that some concerns would be alleviated if the USMCA trade agreement is passed, which happens to be an effort that will be address by congress soon.

The DXY US Dollar Index dropped from $97.50 this morning to $97.09 into the afternoon trading session. The market is pricing in a 100% chance of a 25bps cut for this month’s Fed meeting, as well as a 28% chance for a 50bps cut.

Fed Rate Cut Implied Probabilities

FED

Chart prepared by Chris Vecchio

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

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