Fed Chair Jerome Powel stated that the Fed is determined to curb inflation, even to the expense of economic growth, raising expectations of future rate hikes.
The dollar price surged last week as the Fed tightened its monetary policy further, with the dollar index reaching a fresh 20-year high above the 113 level. US Treasury yields soared, with the US 10-year bond yielding touching 3.8%, its highest value since 2011, and the 2-year bond yielding above 4.2% for the first time since 2007.
The dollar price was volatile last week as a result of Wednesday’s Fed policy meeting. Unexpected developments from the BOJ and the BOE also contributed to a climate of uncertainty. On Friday, Fed Chair Jerome Powell delivered a speech that was in line with the US Central Bank’s hawkish stance, boosting the dollar.
The US Federal Reserve voted to raise its interest rate by 75 basis points on Wednesday to curb soaring US inflation rates. The US Central Bank has increased interest rates by a total of 300 basis points this year, bringing its benchmark interest rate from 2.50% to 3.25%. The Fed’s move was in line with market expectations and had largely been priced in, while some analysts were even predicting a 100-bp rate hike.
In a hawkish statement after the Fed meeting, US policymakers downgraded their GDP estimates, while revising upwards the inflation outlook. Inflation in the US is not cooling at the expected rate, putting pressure on the Fed to maintain its hawkish stance. CPI increased by 0.1% in August and Annual CPI through August increased by 8.3%, prompting the Fed to continue tightening its monetary policy.
Federal Reserve Chair Jerome Powel in a Press Conference after the meeting raised expectations of future rate hikes. Powel stated that the Fed is determined to curb inflation, even at the expense of economic growth, pointing to more rate hikes. Powell’s speech fuelled recession concerns, boosting the safe-haven dollar and pushing stock markets down.
Indicators of economic activity released last week for the US presented an overall optimistic economic outlook, bolstering the dollar. US Flash Services and Manufacturing PMI data exceeded expectations and were considerably higher than last month’s values, indicating that the US economy is expanding. US Unemployment claims were lower than anticipated, dropping to 213K from 220K forecasted. Trade Balance data released on Thursday also exceeded expectations, boosting the dollar.
Several indicators of economic activity are scheduled to be released this week for the US and may affect the dollar in the wake of last week’s policy meeting. More importantly, FOMC members’ speeches are expected to cause some volatility in the currency and especially Fed Chair Powell’s speeches on the 27th and 28th.
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