Fed Chairman, Jerome Powell, yesterday said that it was too early to talk about a slowdown in the pace of rate hike. It is as there was "no sign of inflation declining" seen so far.
The statement triggered a rally of the US dollar index or it is also known as DXY above the 112.00 threshold in the New York session. Market participants must prepare a new step for that condition..
The level was still occured although its position was slightly corrected to the 111.80s range at the beginning of the Asian session some days ago. Powell’s statement is a positive catalyst for USD.
However, it becomes a bad news for equity and other currencies. The FOMC meeting done several days ago raised the interest rates by 75 basis points for the fourth straight time, in line with consensus estimates.
Monetary Policy Tightening may be Continued
The Fed Chairman Jerome Powell also reiterated his intention to continue aggressively tightening monetary policy. That plan is in contrary to previous market speculation.
He said that a plan like that is needed in order to control the pace of inflation. Furthermore, he gave his explanation of why the step like that must be taken as soon as possible.
If People tighten the policy less, the next year or two people will realize that they have not controlled inflation. This opinion was shared by Powell at a moment several days ago.
He also said that the Fed's next meeting in December is likely to raise interest rates by a smaller amount. That just in line with the prediction made by several analysts so far.
Greenback Got a Positive Support
However, Jerome Powell warned of enormous uncertainty about how high interest rates would need to be raised. He gave a hint that terminal rate may end at a higher position.
Powell's remarks were a positive catalyst for the greenback, but it became a bad news for higher-risk assets in the market. For your information, The Dow Jones stock index jumped about 2 percent.
Based on a release, the USD rival also fell. The EUR/USD pair slammed into the 0.9800s range, and GBP/USD had the same trend. That pair was in the 1.1380s.
Analysts think that the statement should undermine market speculation due to a rate hike made by the Fed slowdown. However, they also said a monitoring is still needed about the upcoming data.
It is especially to gauge how big the Fed's next rate hike will be. One of the closest schedules, Nonfarm Payroll of America that will be held soon.
USD / JPY Failed to Record a Bullish Daily Candle
There are still a lot of flakes missing in Federal Reserve policy and the direction the dollar is moving from now on. This situation is based on a reason which can be noted in the forex market.
That is as people will get a pair of employment and inflation reports before they hear the next news from the Fed. In this case is FOMC in December as it is said by Joe Manimbo
Joe Manimbo is a senior market analyst at Convera, as reported by Reuters. In this situation, the strengthening of the yen against the US dollar is in the spotlight.
So far, The USD/JPY duet failed to score a bullish daily candle despite Powell's hawkish remarks. His position was actually further depressed to the 127.30s when this news was written.
Many Analysts Still Have a Bullish Opinion
Some market participants suspect that Japan continues to intervene secretly to prevent further yen weakness. Previously, the Japanese government had poured about 43 billion USD into a currency intervention program last month.
It seems that several analysts still have a more bullish view to the USD. RBC assessed that a growth at the employment market will continue to slow down.
However, it will be still positive. They also have the same opinion that jobless rate will raise for a bit at the end of this year.
