empty
 
 

Forex Analysis & Reviews: Powell vs dollar: will he support or let it float freely?
time 26.08.2022 10:07 AM
time Relevance up to, 31.08.2022 09:10 AM

This image is no longer relevant

At the start of the symposium in Jackson Hole, the intrigue about the succeeding dynamics of the dollar increases. Market participants are tensely waiting for what Federal Reserve Chairman Jerome Powell will say and how his speech will affect the current monetary policy and the prospects of the greenback.

At previous symposiums, Powell paid attention to very important issues. In 2020, he announced monetary stimulus for the American economy affected by the COVID-19 pandemic. Last year, the key moment was the statement about the temporary nature of inflation and the curtailment of incentives. Powell's mistake. His stance on inflation has cost the world and American economies dearly, although this situation is fixable.

In 2022, the theme of the event is a reassessment of the current constraints in the economy, namely a large-scale price increase and ways to combat off-scale inflation. Experts are considering two scenarios of Powell's speeches:

1) Basic

The head of the Fed will once again pay attention to extremely high inflation, stressing that the monetary authorities will fight it. The US central bank will do everything possible to maintain economic growth in the United States.

2) Negative

Powell will confirm that the Fed is following the chosen course and is ready to aggressively raise rates to combat inflation. Against this background, the US economy will experience strong pressure. In addition, there may be an increase in yields and a correction in the markets. However, there are no prerequisites for the implementation of the second scenario.

According to experts, Powell's actions will determine the further dynamics of the greenback. Market participants expect that Powell's speech will clarify the immediate prospects of monetary policy. According to analysts, Powell "will try to manage market expectations" while maintaining the hawkish position of the Fed. On Thursday, August 25, at the symposium that began in Jackson Hole, representatives of the Fed confirmed their intention to raise rates and keep them at a high level until inflation weakens. At the same time, investors remain optimistic about the US currency and cautious with a negative bias towards the European one.

The dollar showed confidence this week, gaining momentum after the release of positive macroeconomic data. As a result, in the second quarter of 2022, the US GDP growth rate was revised upward (from -0.9% to -0.6%). At the same time, the number of applications for unemployment benefits decreased more than expected. After the statistics were released, profitability in the US peaked, but then retreated slightly from high levels.

Experts have recorded a steady growth of the greenback over the current year (by 13.5% against a basket of key currencies). The US currency has risen to its highest level in 20 years, while the euro has fallen by about 12% to below parity, which has not been the case for two decades. At the moment, there are many USD bulls on the market betting on its rise. Traders and investors are confident that the dollar has the strength to continue growing thanks to the hawkish attitude of the Fed and inspiring economic indicators in the United States.

Against this background, the European currency is noticeably losing to its American competitor. The energy crisis in Europe and the European Central Bank's unstable stance on raising rates add fuel to the fire. At the same time, most representatives of the central bank support an interest rate hike by 50 bps. However, many investors are deterred by the deteriorating economic prospects of the eurozone and constantly rising inflation. Against this background, the inflationary situation in the United States looks much more stable than on the other side of the ocean.

According to analysts, double-digit inflation in the eurozone is due to the long-term Russian-Ukrainian conflict, which provoked the energy crisis. Economists fear that the euro bloc countries will fall into the so-called "downward spiral of wage and price growth", from which it is difficult to get out. Against this background, long positions on the euro sharply plunged, which was under pressure.

The failures of the European currency play into the hands of the American one, experts emphasize. According to JPMorgan analysts, the greenback was supported not only by "encouraging economic data" on inflation and employment in the United States, but also by the "growing vulnerability" of the European economy. Recall that in July, the consumer price index in the United States rose by 8.5% in annual terms. At the same time, the unexpected increase in the number of jobs reduced market fears about the onset of a recession.

The US currency has received strong support thanks to the Fed's aggressive rate hike. According to investment analysts at U.S. Bank Wealth Management, this trend will continue in the near future. Against this background, the EUR/USD pair maintains a bearish trend, and the euro still looks vulnerable. Experts note the growing downside risks in relation to the euro.

In the short term, the EUR/USD pair is able to test the parity level again. The euro is still showing weakening, having failed to hold the 1.0000 mark. According to experts, the recovery above the level of 1.0030 will support the single currency. However, now it is rapidly sinking. The EUR/USD pair was near 0.9963 on the morning of Friday, August 26. Currently, experts consider the 0.9950 mark to be the support line, the breakdown of which will pull the pair to the low level of 0.9900.

This image is no longer relevant

Earlier, currency strategists at Capital Economics announced a prolonged period of the euro's weakness amid deteriorating economic conditions in the eurozone. Against this background, the dollar has every chance of rising, as markets expect the Fed to raise rates again in September. The implementation of such a scenario will increase pressure on the euro. However, any signals from the head of the central bank that the Fed recognizes the stabilization of the inflation rate will allow the markets to interpret what has been said in favor of easing the monetary policy. Misinterpretation of Powell's statements can shake the dollar's position and help the short-term recovery of the EUR/USD pair, experts believe.

Larisa Kolesnikova,
Chuyên gia phân tích của InstaForex
© 2007-2023

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.

  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    THAM GIA CUỘC THI
  • Tiền gửi lần truy cập
    Ký quỹ tài khoản của bạn với $3000 và nhận được $10000 nhiều hơn!
    Trong Tháng 01 chúng tôi xổ $10000 trong chiến dịch Chancy Deposit!
    Có được một cơ hội giành chiến thắng bằng việc ký quỹ $3000 vào một tài khoản giao dịch. Đáp ứng được điều kiện này, bạn trở thành một người tham gia chiến dịch.
    THAM GIA CUỘC THI
  • Giao dịch khôn ngoan, thành công
    Nạp tiền vào tài khoản của bạn với ít nhất $ 500, đăng ký cuộc thi và có cơ hội giành được các thiết bị di động.
    THAM GIA CUỘC THI
  • 100% tiền thưởng
    Cơ hội duy nhất của bạn để nhận 100% tiền thưởng khi gửi tiền
    NHẬN THƯỞNG
  • 55% Tiền thưởng
    Đăng ký tiền thưởng 55% cho mỗi lần gửi tiền của bạn
    NHẬN THƯỞNG
  • 30% tiền thưởng
    Nhận 30% tiền thưởng mỗi khi bạn nạp tiền vào tài khoản của mình
    NHẬN THƯỞNG

Recommended Stories

Oil prices edge up, and Russia transfers record volumes on high seas

Oil is steadily rising in trading on Thursday amid expectations of increased demand. The easing of some quarantine restrictions in China promises the market a recovery in consumption this year

Natalia Andreeva 22:52 2023-01-26 UTC+2

Asian stocks move in different directions again

Asian equities were moving in different directions on Thursday. The Hong Kong stock exchange trading resumed, and the Hang Seng Index immediately showed an increase of 2.02%. The Korean KOSPI

22:52 2023-01-26 UTC+2

Winter for the dollar, summer for the euro: USD doesn't know how to get out of the pit

The dollar is still stuck in the financial pit. The greenback fell to an 8-month low on Thursday, once again yielding to the euro. Market participants expect

Larisa Kolesnikova 08:14 2023-01-26 UTC+2

US stock market closed mixed, Dow Jones up 0.03%

The US stock market ended Wednesday's trading in different directions due to the strengthening of the telecommunications, consumer services and finance sectors. The market demonstrates against the backdrop of negative

Thomas Frank 04:16 2023-01-26 UTC+2

The pound is resisting the downturn

The British currency successfully resists the downtrend, although the periodical GBP slump gives investors a reason to be pessimistic. However, sterling refuses to stand still. At the beginning

Larisa Kolesnikova 08:42 2023-01-25 UTC+2

USD/JPY: Every day is the last

Every day the dollar-yen asset feels the approaching end and tries to postpone it in every way possible. This week, the greenback and the yen are showing an unquenchable thirst

Аlena Ivannitskaya 08:36 2023-01-25 UTC+2

GBP/USD. The pound is having a nervous breakdown, but not for long

The pound is unstable on Tuesday as markets wager on the past and upcoming events. The risk of Britain's slide into recession has worsened the pound's prospects ahead

Anna Zotova 22:47 2023-01-24 UTC+2

Japanese and Australian indicators continue to rise

The Japanese and Australian indices were up to 1.6%. The Australian S&P/ASX 200 gained 0.45% and the Japanese Nikkei 225 added 1.59%. In China, Hong Kong, and Korea, exchanges

15:18 2023-01-24 UTC+2

USD/JPY struggles to maintain balance

USD/JPY is trying to maintain its balance, but few are confident in the US dollar's position. It is only a matter of time before USD slips and drops down

Аlena Ivannitskaya 07:51 2023-01-24 UTC+2

Is the euro going backwards? It's not the dollar's fault

The "adventures" of the European currency continue: the markets are closely watching its values, having switched from the greenback for a while. The latter is also experiencing some volatility

Larisa Kolesnikova 07:40 2023-01-24 UTC+2
Không thể nói chuyện ngay bây giờ?
Đặt câu hỏi của bạn trong phần trò chuyện.