US dollar stronger after hawkish Fed Powell Testimony
Discover how Fed Chair Jerome Powell's cautious Congressional testimony influenced the US dollar, leading to gains against major currencies and potentially setting the stage for a historic high in USD/JPY trading.
Key points
- Fed Chair Powell faced questions from the Senate this morning and will return to address the House tomorrow
- Powell gave no indication of when overnight interest rates will lower
- CME futures markets are pricing in a 73% chance of a rate reduction in September
- USD/JPY rose back above 161.00 intraday, near fresh 38-year highs
Fed Chair Powell speaks to Congress
Federal Reserve Chair Jerome Powell addresses Congress twice annually; today, he engaged with the Senate Banking Committee and is scheduled to speak before the House Finance Committee tomorrow. These sessions are pivotal as they offer insights into the Fed's perspective on economic policy and its impacts on market conditions.
Powell says Fed "meeting by meeting" on potential rate cuts
While the market anticipates the first interest rate reduction since the pandemic, Jerome Powell emphasized that the Federal Open Market Committee (FOMC) will approach decisions on a "meeting by meeting" basis. Senators took this opportunity to press Powell on a definitive answer, but he refused to give any signal of when to expect a change in rates. This careful, deliberative process indicates the Fed's cautious stance on adjusting rates amidst current economic variables.
Interest rate markets predict September cut
Although Chair Powell did not confirm timing, interest rate markets are speculating a strong probability of a 0.25% rate cut by September, aiming to adjust from the current range of 5.25-5.50%. Futures markets from the CME are currently predicting a 73% chance of lower rates by the September meeting. The same markets are also anticipating another 25bps rate cut by the end of the year.
US dollar rallies on no solid rate cut plan
The lack of a definitive plan for interest rate cuts from Powell's recent address led to the US dollar strengthening against key currencies such as the EUR, GBP, and JPY. This rally showcases how ambiguity in rate adjustments can drive forex market movements, heightening the dollar’s appeal as a safer investment amidst uncertainty.
USD/JPY nears new high above 162.00
Following recent trends and the impact of Powell’s speech, USD/JPY has surged past 161.00, reapproaching its highest level since 1986. The US dollar hit a fresh 38-year high against the yen on July 3rd, when the pair got as high as 161.95. Traders now speculate whether USD/JPY is due to hit even greater extremes above 162.00 or if a reversion to historical averages is soon to come.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.