Powell Takes Centre Stage For The First Time As Fed Chair

Market Analysis /
26 Feb 2018

With Jerome Powell looking to outline some of his thoughts on policy as he officially makes his first speech as the New Chair of the Federal Reserve let’s look to what he may say and what it could do to the dollar this week. Powell will actually speak twice this week and his remarks should go a long way in reassuring the market that the Fed is set to deliver three rate hikes this year as a minimum.

There shouldn’t be too much change in Powell’s initial stance, as to that of Janet Yellen. The economy is still in a fairly strong position and a course of gradual rate hikes is still the best course of action in terms of overall monetary policy.

This performance is likely to be a chance for Jerome Powell to show himself as the next safe pair of hands to nurse the US economy back to full health, so the chances are it’s a little too early in his tenure for him to be too gung-ho and hint at more than the three rate hikes that are priced into the Fed Funds. Current probability has a 100% chance of a March rate hike with a 60% chance that we will see 3 rate hikes by June, and a 36% chance of a fourth hike in December.

With at least three hikes priced into the Dollar the medium and short-term direction of greenback relies heavily on rhetoric surrounding the all-important fourth rate hike, which increasingly relies on CPI improving. The Fed has used the stubbornly low inflation as a reason to hold off on being overly hawkish on policy. However, they have now consistently raised inflation expectations as well as wage growth forecasts with wages set to be another key market mover this week with Friday's US jobs report.

It’s been a pretty eventful day for the Dollar despite the lack of anything meaningful on the macro calendar, with Cable rising before erasing all of the gains to trade back down at 1.3940 and EURUSD breaking below the hourly trendline and looking to test downside support at 1.2280.

USDJPY is in a similar situation and is dominated by the US dollar swings, with the pair looking to test the 107.14 level on the upside with 107.00 acting as the real point of control for the pair over the first few days of the week, above this level the pair looks strong.

After a quiet Monday from a data point of view, Jerome Powell will follow on from Mario Draghi on the list of key speakers, with the new Fed Chair the headline grabber for the early part of the week.

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