Daily Market Update

“Hawkish” Powell propels USD to best since November

February 05, 2024

The U.S. Dollar is trading in favorable ranges, currently at its best levels since mid-November, per the Bloomberg Dollar Spot Index.

Overview

A rally in Buck’s favor developed overnight after commentary from Fed Chairman Jerome Powell signaled that officials will not be looking to pivot towards a “dovish” stance anytime soon. Indeed, the 60-Minutes broadcast helped lower the chances of the Fed increasing interest rates at their March meeting to 18.0%.

Powell made it clear in simple terms that markets have priced-in cuts without truly taking into consideration how strong the economy is. He explained that there are risks in acting too quickly in going “dovish,” cutting interest rates after a long period of a year and a half to try to tame inflationary pressures. Price-growth acceleration can return at any time, especially as global troubles affect the supply chain once again, giving suppliers some headwinds that consumers then pay for.

Furthermore, he was clear that you do not want to prevent economic momentum by getting in the way and that is why waiting for data to tell the story is how the Fed is going to approach 2024 policy. We have a few pieces of data this week, starting with the S&P Purchasing Managers Index at 9:45 AM while the January ISM Services Index comes out at 10 AM, which could make an even stronger case for leaving things with expansion forecasted. There will be Fed members speaking throughout the week, but they may just echo Powell’s statements.

What to Watch Today…

EUR  ⇓

The Euro fell to its weakest point since mid-November as it became established for all traders and investors that the Fed is not looking to loosen monetary policy anytime soon. Powell’s interview had a significant effect on dampening the chances for the Buck to depreciate based on a “dovish” Fed. The European Central Bank is also not likely to cut, but economic performance is where the true divergence is hard to hide. We have little in terms of major data out of the Euro-zone, but it is still worth paying attention to Germany’s Factory Orders out Tuesday and their Consumer Price Index on Friday. Euro-zone Retail Sales will also be released tomorrow.

GBP ⇓

Sterling is down to its worst levels since mid-December, dropping in value as all other tender based on confirmed faith in the U.S. economy from the highest of monetary authorities. Although a downer for the dollar’s peers, the Pound may have support later as economic progress is assessed. S&P Global UK Composite PMIs came in better than expected and continued a trend of expansionary readings in the past few months. We may often associate GBP with a British economy in pain, but perhaps they are now rising from the bottom.

 

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