The United States dollar index or it is also known as DXY, slumped at 105.40 at the start of Thursday's European session (9/March). However, this pair still held near the three-month high reached yesterday.
Nevertheless, the Fed Chairman's testimony has made clear the difference in the United States' interest rate projections with several other major central banks.
Fed Chairman, Jerome Powell, delivered a slightly more cautious statement in his second day of testimony last night. He continued to carry the hawkish message uttered in the first day's testimony.
However, he reiterated that discussions about the scale and path of future rate hikes will depend on future data. Powell acknowledged that the March interest rate decision depends on data.
Economic Acceleration: Temporary Deviation or A Trend?
The statement above was said by Thierry Wizman, an FX and global rate strategist at Macquarie. Therefore, the question that people face is about the economic acceleration.
It is especially in the United States data in January whether that is a temporary deviation or a trend. Powell caution helped several other major currencies to take a slight breath of greenback pressure.
That was done while awaiting the publication of the next U.S. economic data. Some of the closest announcements include Unemployment Claims data later in the evening.
It was as well as Nonfarm Payroll and the U.S. Unemployment Rate tomorrow. The schedule for the release of various data packages related to US inflation next week will also be in the spotlight.
USD/JPY Slipped by 0.85%
At the time of this news was writing, the USD/JPY fell by 0.85% to a range of 136.15 despite stagnant Japanese GDP data this morning. EUR/USD also crawled slightly around 0.25%.
Meanwhile, the GBP/USD rose by 0.35% and the antipodean currency gained 0.4%. Regardless, the shadow of the American dollar still dominates the market as Fed rate expectations remain high.
The Fed Funds Futures now hints at a nearly 70% chance of a 50 basis point Fed rate hike at its March 21-22 FOMC meeting. The Bank of Canada (BoC) and the Reserve Bank of Australia (RBA) this week took opposite stances from the Fed.
The BoC's policy meeting yesterday kept the interest rate at the rate at 4.5%. It also confirmed the intention not to change it over the next few months.
USD is Corrected due to Powell’s Statement
Thus, the BoC officially became the first major central bank to halt its post-pandemic monetary tightening cycle. RBA Governor Philip Lowe yesterday also expressed an intention to halt the cycle in the near future.
Australia's benchmark interest rate is unlikely to be raised again from April. Before, the US dollar index (DXY) moved away from a record high of 105.88 in Wednesday's New York session (8/March).
After the Fed Chairman shocked the market with a hawkish statement yesterday, market participants are still busy discussing the prospect of a future rate hike.
In his first day of testimony, Powell said that the Fed likely needs to raise interest rates higher than previously expected. It was actually in response to recent strong economic data.
50 BP Rate Hike can be Taken
The statement triggered market participants to raise the Fed's interest rate projections going forward. Federal Reserve Funds Futures now displayed a 66% chance for a 50 BP rate hike.
This can be done at the Fed's FOMC meeting that will be done on March 21-22. This decision can be still taken even though the odds were only 22% before Powell's testimony.
Market projections for terminal interest rates also rose to 5.6% as of September. The rise in projections triggered a rally in the United States dollar in Tuesday's trading.
However, some analysts think that the market reaction is too much. Besides that, they also agreed that Powell's testimonials today will not provide any new catalysts anymore.
