Forex – Why The Dollar Was Undaunted By Powell’s Warning

• USD Powell Says No Rate Hikes Until Max Employment and 2% Inflation
• Euro ECB President Lagarde Says Inflation Not Meeting their Goal
• Intraday Volatility in Stocks Leads to Weakness in NZD and AUD
• 8 Day Oil Rally Loses Momentum
• Happy Lunar New Year!

The US dollar traded higher against most of the major currencies today, seemingly unfazed by weaker inflation data and dovish comments from Fed Chairman Jerome Powell. With stocks hitting record highs, the Biden Administration making progress on finalizing the stimulus deal and more Americans getting vaccinated, some Fed Presidents have been talking about earlier tapering.

However, Powell cast doubt on this scenario by saying that they will not tighten policy in response to strong labor data because a strong labor market is still very far away. In fact, he calls for rates to remain at the current near-zero level until the economy reaches maximum employment and inflation hits 2%. The economy dropped to a very low base during the pandemic, millions of Americans are unemployed and Powell wants to ensure a durable recovery.

10 and one 10 us dollar bill

Image Source: Unsplash

Oil prices hit a 1 year high this month but inflation remains subdued according to the CPI report. Headline inflation rose 0.3% in January but the core rate was unchanged. Even if prices rise in the coming months, Powell said “it isn’t going to mean much.” Comments like this should have driven the U.S. dollar lower but the greenback strengthened against most of the major currencies in the New York trading session.

European Central Bank Governor Christine Lagarde doesn’t see rising inflation as a concern as well. In today’s speech she said inflation is not converging to their goal over the medium term which signals that she’d like to keep policy accommodative . This is more dovish than their comments last month when they suggested that they may not need to use the full PEPP envelope if financing conditions remained favorable. Euro came off its earlier highs and traded heavy for most of the NY session.

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