FX Brief: Powell Pops Dollar Bulls’ Balloon
- Fed Chairman Powell struck a dovish note in his semi-annual testimony to Congress, citing the risk that weak inflation will be even more persistent and that uncertainties continue to dim the Fed’s outlook. Separately, the minutes from the June FOMC minutes confirmed his message, noting that “many” officials saw risks weighted to the downside and a stronger case for cutting interest rates.
- The US dollar was the weakest major currency as a result, with some traders pricing in the potential for a 50bps “double” rate cut at the end of the month.
- The Bank of Canada left interest rates unchanged at 1.75% with a slightly dovish tilt, but a 4%+ surge in crude oil (the best day in three weeks) on the back of a big inventory drawdown and concerns about storms in the Gulf of Mexico kept the loonie’s performance in the middle of the major currencies.
- The kiwi was the strongest major currency on the day.
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