Why U.S. Dollar Was Undaunted By Powell’s Warning

·      Powell Says No Rate Hikes Until Max Employment and 2% Inflation

·      Euro ECB President Lagarde Says Inflation Not Meeting Goal

·      Intraday Volatility in Stocks Leads to Weakness in NZD and AUD

·      8-Day Oil Rally Loses Momentum


The traded higher against most of the major currencies, seemingly unfazed by weaker inflation data and dovish comments from Fed Chairman Jerome Powell. With stocks hitting record highs, the Biden Administration making progress finalizing the stimulus deal and more Americans getting vaccinated, some Fed presidents have been talking about earlier tapering. 


However, Powell casted doubt on this scenario by saying that the Fed will not tighten policy in response to strong labor data because a strong labor market is still very far away. In fact, he calls for rates to remain at the current near-zero level until the economy reaches maximum employment and inflation hits 2%. The economy dropped to a very low base during the pandemic, millions of Americans are unemployed and Powell wants to ensure a durable recovery. 


hit a one-year high this month, but inflation remains subdued, according to the report. Headline inflation rose 0.3% in January but the core rate was unchanged. Even if prices rise in the coming months, Powell said “it isn’t going to mean much.” Comments like this should have driven the U.S. dollar lower, but the greenback strengthened against most of the major currencies in the New York trading session. 


European Central Bank Governor Christine Lagarde doesn’t see rising inflation as a concern either. In a speech today, she said inflation is not converging to the ECB goal over the medium term, which signals that she’d like to keep policy accommodative. This is more dovish than comments last month, when the ECB suggested that it may not need to use the full PEPP envelope if financing conditions remained favorable. The came off its earlier highs and traded heavy for most of the New York session. 


The best performing currency today was sterling. Bank of England Governor Andrew Bailey did not touch on monetary policy in his speech, choosing instead to urge the European Union to grant the financial services industry market access for securities clearing. has outperformed euro since the beginning of the year and continues to do so as the country forges forward with vaccination.


The and dollars were the weakest currencies on Wednesday. No economic reports were released from the commodity-producing countries, but as high-beta currencies, they are particularly vulnerable to stock market volatility and U.S. dollar rally. 


The went on quite a rollercoaster ride, starting the day up more than 100 points at record highs only to turn negative an hour later before recovering back into positive territory. climbed above 1.27 as the eight-day-long rally in oil moderated.


Looking ahead, the Chinese Lunar New Year should reduce participation in the market. The economic calendar is light with only U.S. jobless claims and Australian consumer inflation expectations scheduled for release. 

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