Will Powell Keep Yesterday’s Demand Going for the USD?

Last week, USD buyers started to come back after the USD had been bearish during most of the month, but in the first two days of this week, we saw the price action in many pairs form a reversal, going against the USD. Yesterday the Buck turned bullish at the start of the US session without any apparent reason, which seemed strange since it didn’t rally in the strong economic data we saw on Tuesday from the US. Although several other factors might have been in play.

EUR/USD dipped below 1.09 after coming from 1.0960, while Gold fell to $1,903. Although the commodity dollars and GBP/USD were the hardest hit during this USD run. As we mentioned, we saw some strong Positive numbers on US consumer confidence and new home sales, which have raised the possibility of the Federal Reserve implementing further rate hikes. The market is recognizing the significant fiscal stimulus in the US economy and the potential impact it may have on monetary policy.

On the other hand, we have seen some soft economic data from other countries around the world. The release of soft inflation reports in Australia and Canada has led to speculation that central banks may rethink their rate hike plans. The probability of a rate hike by the Bank of Canada (BOC) in July has decreased, indicating a potential shift in expectations.

The dynamics in the Chinese Yuan are another factor. Chinese banks intervened in the yuan to support its value, but there are indications that the People’s Bank of China (PBOC) may allow the dollar to strengthen further against its currency. This has implications for currency exchange rates and market sentiment.

Quarter-end flows are also to be taken into consideration. As the end of the second quarter approaches, there may be significant flows of funds and positioning adjustments by market participants. These flows can influence currency movements and market dynamics, particularly during the most liquid periods of the trading day. Anyway, we have Jerome Powell holding a speech again today in Madrid, which might give the USD a small boost, if he repeats the rate hike comments for July.

Comments From FED’s Jerome Powell in Sintra

• We believe there is more restrictive policy coming
• If you look at the data over the last quarter, data on jobs, inflation and activity is all strong
• Policy hasn’t been restrictive for very long
• As you get closer and close to the goal, the risks become more in balance
• We have not made a decision to hike at every other meeting. I would not take moving at consecutive meetings off the table
• New rents are happening at n
• We haven’t seen much progress in non-housing services. Notes hotels, travel services, heal-thcare as places not seeing a lot of progress
• Labour costs are high in non-housing services. Cites that as a causing inflationary pressures
• We need to see more softening in the labour market
• The services sector isn’t particularly interest-rate sensitive

EUR/USD Live Chart