Powell Hits a Dovish Note Dollar Index Drops Back Toward 9700

Powell Hits a Dovish Note, Dollar Index Drops Back Toward 97.00

Jerome Powell is in the midst of his semi-annual “Humphrey-Hawkins” testimony to the House Financial Services Committee, and so far, the Fed Chairman has struck a dovish note, despite last week’s better-than-expected jobs report.

The highlights from Powell’s prepared remarks follow (emphasis ours):

UNCERTAINTIES SINCE JUNE FOMC CONTINUE TO DIM OUTLOOK
MANY AT JUNE FOMC SAW CASE FOR SOMEWHAT EASIER POLICY
HOUSING, MANUFACTURING LOOK TO HAVE DIPPED AGAIN IN 2Q
GROWTH IN BUSINESS INVESTMENT SEEMS TO HAVE SLOWED NOTABLY
THERE IS A RISK THAT WEAK INFLATION WILL BE EVEN MORE PERSISTENT THAN WE CURRENTLY ANTICIPATE

An elementary reading of just the first two bullet points solidifies the case for an interest rate cut later this month: if “many” central bankers already saw the case for “somewhat easier policy” in June, and “uncertainties” since then “continue to dim” the outlook, then the case for a cut should be very strong indeed.

Not surprisingly, traders are have fully priced in a rate cut at the end of this month, with the market-implied odds of a 50bps “double” cut ticking up to around 20%. In a testament to the effectiveness of the Fed’s communication strategy, the central bank has met market expectations in all 81 of its meetings over the last decade, raising interest rates nine times and leaving them unchanged 72 times; we doubt this month’s meeting will be any different.

After last week’s solid US jobs report, the dollar index rallied back above 97.50 as some aggressive traders considered the possibility that the Fed may hold off on cutting interest rates. Today’s testimony implies that a rate cut is a “done deal,” and the greenback has dropped back toward 97.00 as a result.

Source: TradingView, FOREX.com

Barring any significant developments on the US-China Trade War front, the dollar index may hold within its 95.80-98.30 range for the near term while traders wait for more clarity on Fed policy through the rest of the year.

Related Analysis:

USD/CHF hits resistance ahead of key US macro events

[Video] USD/CAD Braces Itself for Volatility Ahead of Powell and BoC

Gold testing $1390 ahead of Powell's testimony

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.