Relevance up to 11:00 2022-01-28 UTC+00
The US dollar rose after Jerome Powell’s rather harsh statements during a meeting of the US Federal Reserve’s Open Market Operations Committee on Wednesday, which cannot be said about the stock market, whose indicators have noticeably declined.
So, the American regulator, as expected by analysts, left the interest rate in the country unchanged. The first and, perhaps, the main thesis of the meeting sounds like this: the right time to raise interest rates is about to come. The completion of the asset purchase program will take place a couple of weeks earlier than expected, namely in early March. The reduction of the balance sheet will occur from the beginning of the rate hike cycle. The situation in the economy and labor market of the United States is already noticeably better. The unemployment rate has finally significantly decreased, so there is no point in delaying the tightening of the PEPP.
It is worth noting that Powell, in an uncharacteristic manner, spoke rather harshly about the economy during the meeting, and did not calm the already noticeably fallen market. He finally admitted that inflation in the US is too high and its growth can no longer be called a temporary phenomenon. Powell stressed that the US economy no longer needs such large support from the Federal Reserve.
Bank of Singapore strategist Moh Siong Sim said that the market expects rates to rise at least four times this year, that is, one increase per quarter. At the same time, J. Powell noted in his speech that he does not exclude more than four stages.
After the meeting of the American regulator and the subsequent press conference, Powell’s dollar exchange rate fluctuated for a while, but eventually returned to the levels that preceded the announcement of the results. On Thursday, greenback quotes are trading at the highest level in many weeks. The dollar index against a basket of six major currencies by the time of preparation of the material increased by 0.92% to 96.81.
Paired with the single European currency, the dollar rose to a two-month high of 1.1195. Against the Japanese yen, it was able to maintain growth at the level of 114.81. Paired with the kiwi, the dollar rose to its highest level in more than a year, and against the Australian dollar rose to a seven-week peak.
The pound sterling fell against the dollar by 0.29%. At the time of preparation of the material, it is trading at $ 1.3422, while being in a delicate balance. The movement of the pound is limited by the situation with British Prime Minister Boris Johnson, who is under pressure because he attended parties during the general quarantine in the country. Traders’ close attention is also focused on the meeting of the Bank of England, which will be held next week.
Speech by Powell had a strong impact on risky assets. So, Thursday morning was marked by the fact that in Asia, the leading indexes are falling within 3.1%, futures for the main American indexes fell by more than 1%.
The Fed’s harsh rhetoric on Wednesday also had an impact on US stock indices, which fell sharply last night. On Thursday morning, futures on them lost more than 1%.
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