The US Dollar Index was trading sideways today as the dollar stabilised, following a two-day decline driven by hawkish expectations. However, the much-anticipated speech from Fed Chair Jerome Powell did not boost the dollar.
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The Fed chair spoke about the central bank’s independence in setting monetary policies and fighting inflation while insisting that the Fed’s congressionally-established mandate was not to set policies relating to climate change.
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Powell said the Fed would stick to its mandate to fight inflation while steering clear of political issues and fiscal policies, which the US government implements through the Treasury. The move comes as the US government is split, with Republicans controlling the House of Representatives and Democrats controlling the Senate.
However, many were disappointed by the Fed Chair’s remarks since they did not touch on the much-anticipated February rate hike. Based on recent comments, many expect the Fed to keep hiking rates until they cross the 5.0% mark.
Most investors were disappointed by the lack of follow-through on last week’s rally by US stocks as the Q4 earnings season kicks off in earnest, led by banks. Many expect corporate earnings to dip this quarter due to the Fed’s rate hikes.
Many analysts and investors were hoping that the Fed would not raise interest rates past the 5.0% threshold, but this no longer seems to be the case. The Fed is keen to instil maximum pain by stopping the rampant speculation in many markets that had led to record-high prices.
The only way to achieve this is to hike rates until they cause a significant recession scaring consumers and investors from making purchases. However, the recent market movements indicate that many investors are ready to start buying stocks as long as they think the Fed will not keep raising interest rates.
Therefore, the Fed is playing its cards close to its chest as it tries to forcefully cool the markets and extinguish the recent rallies witnessed across most assets amid expectations of a peak in rate hikes.
*This is not investment advice.
The US Dollar Index (DXY) price chart.
The US Dollar Index was trading down 5.4 pips (0.05%) as the dollar traded sideways against most of its peers.
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