The Dollar, which had held its ground yesterday ahead of Federal Reserve Chairperson Powell’s testimony before the Joint Economic Committee in Washington, has given up a bit of ground in the past 24 hours.
Powel, in the first of a two-day session, painted a reasonably bearish outlook for the US economy, despite the underlying strength in the labour market, and gave the clearest indication yet that the Fed was ready to cut its policy rate at its 31st July meeting. Moreover, the minutes of the Fed’s meeting on 19th June revealed that many FOMC members saw a stronger case for a rate cut case amidst rising risks. Markets subsequently once again upped their pricing of rate cuts at the July meeting to 31bp and for the remainder of the year to 70bp. The Dollar did, however, recover slightly after the release of data showing that US core CPI-inflation had edged higher in June
to 2.1% yoy from 2.0% yoy in May.
Overall equity markets welcome the Fed’s dovish tone, with the S&P 500 temporarily breaching the 3,000 level before closing a fraction lower at 2,993. Powell will today resume his testimony but to some extent the cat is already out of the bag and the S&P 500 is again knocking on the door of the 3,000 level.
Dollar weakness has helped the GBP /USD cross rise back up above 1.25. Sterling is also slightly outperforming the Euro although the GBP/EUR weakened following the release of the minutes of the ECB’s June meeting. ECB Board members were in broad agreement that they needed to be ready to loosen monetary policies although markets may have been looking for clearer signs that the ECB was close to cutting its policy rates and/or resuming QE.
