Orbex Market Flash

USD Lower As Powell Says Interest Rates Now "Just Below" Neutral Level

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The US Dollar has traded lower over the last 24 hours following comments from US Fed chairman Jerome Powell who told investors that the headline US interest rate is now “just below” the neutral rate.

Speaking at the Economic Club of New York Powell told investors “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy–that is, neither speeding up nor slowing down growth.”

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Powell Retreats On Earlier Comments

These comments from the Fed chair have taken the market by surprise following earlier comments from Powell in October when he said that the Fed’s policy rate was “a long way from neutral at this point, probably.”

Interestingly, these latest remarks come just after the President once again criticized the Fed chief telling reporters that he was “not even a little bit happy” with Powell.

Trump has criticized the Fed several times this year, despite widespread condemnation for his remarks which are seen as a threat to the independence of the central bank.

Is Powel Paving The Way For Slower Rate Hikes?

Powell’s comments have been interpreted as an admission by the Fed that policy hiking has been too aggressive and forecasts for further hikes are too ambitious.

Speaking of the tightening so far, Powell said:

“We know that things often turn out to be quite different from even the most careful forecasts”

Adding:

 “Our gradual pace of raising interest rates has been an exercise in balancing risks.”.

Investors suspect that Powell is essentially paving the way for a reduced pace to rate hikes next year. Indeed, market pricing for a December rate hike has now fallen from over 80% before his comments to below 80% currently.

Technical Perspective

usd index

For now, the USD Index remains capped by resistance at the 96.21 level which has survived several upside attempts over the last few weeks. If we break above this level, the next zone to watch will be the 100.32 resistance level which also holds the completion of the large symmetry swing with the last move into the 2016 highs.

 

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