- Jerome Powell noted that while progress toward the 2% inflation target has stalled, it remains on course.
- He emphasized the necessity of allowing more time for monetary policy to take effect and emphasized that the likelihood of a rate hike is extremely low.
- Market expectations are shifting towards rate cuts by the year’s end.
On Wednesday, the US Dollar Index (DXY) plummeted to 105.45 after the Federal Reserve (Fed) opted to keep rates steady at 5.25-5.50% and Chair Powell’s cautious remarks.
Powell highlighted the resilience of the US economy, noting strong domestic demand despite inflationary pressures and a tightening labor market. While acknowledging progress, Powell emphasized the persistence of high inflation, prompting the Fed to adopt a prudent approach regarding future policy adjustments. Consequently, investors are relinquishing expectations of three rate cuts this year, instead deferring the commencement of the easing cycle to the fourth quarter.
Daily digest market movers: DXY drops as markets digest Powell’s comments
The Federal Reserve (Fed) underscored the stall in inflation progress and expressed the need for greater confidence before considering rate cuts.
During the press conference, Jerome Powell acknowledged substantial strides toward the Fed’s dual objectives but highlighted lingering inflation above the target level, with uncertainties regarding further progress. Powell outlined various scenarios, suggesting that if data continues to exhibit strength, the Fed will maintain its current monetary policy stance for a longer duration. Conversely, increased confidence from data could prompt the initiation of rate cuts. However, Powell effectively ruled out the possibility of an imminent rate cut.
Currently, the likelihood of a rate cut by the Fed in June and July is minimal, with odds for the September meeting falling below 55%.
DXY technical analysis: DXY is poised for a downward move, despite slight bullish indicators
On the daily chart, the Relative Strength Index (RSI) exhibits a downward trend while still residing in positive territory. This suggests that despite ongoing buying momentum, bearish pressure is mounting. The Moving Average Convergence Divergence (MACD) displays flat red bars, indicating the potential for a bearish crossover in the near future. This suggests a potential increase in selling pressure in upcoming trading sessions.
Moreover, the DXY’s position above its Simple Moving Averages (SMAs) indicates a slightly bullish sentiment in the short term. Despite a negative outlook in the short term, its position above the 20, 100, and 200-day SMAs implies the presence of bullish forces that could counterbalance bearish sentiment.
