DXY Index Range Breakdown Under Way, Eyes On Powell Speech

The brief pause in the US Dollar’s downtrend (via the DXY Index) proved to be just that – a brief pause – as selling ultimately recaptured traders’ imaginations yesterday following a lackluster release of the December FOMC meeting minutes. The reaction (or lack thereof) was not necessarily a surprise, given that Fed Chair Jerome Powell’s speech on Friday, January 4 at the AEA’s Annual Meeting, where he reset rate expectations just weeks after the FOMC updated its Summary of Economic Projections in mid-December.

FOMC MINUTES WERE A DUD, ATTENTION ON POWELL SPEECH

Fed Chair Powell’s message on Friday was clear: additional tightening steps, be it rate hikes or balance sheet runoff, won’t materialize as quickly as previously anticipated. The central bank chief noted that the central bank was listening “carefully and sensitively” to the “market’s risk concerns” and it could “shift the process” of balance sheet normalization if necessary, as there was "no preset path for policy.” Curiously, the minutes revealed a tone similar to Fed Chair Powell’s; it seems as if either 1) Powell did a bad job communicating the Fed’s intentions at the December meeting or 2) the Fed has ex-post facto massaged the minutes to appear more dovish.

Accordingly, with the December FOMC meeting minutes stale having been rendered stale, and in light of another dreadfully thin economic calendar, attention today should be on his upcoming comments at the Washington Economic Club on Thursday. Given the evolution of his comments over the past several months ((paraphrasing) October: ‘rates a long way from neutral’; November: ‘closer to neutral’; December: ‘balance sheet normalization automatic’; January: ‘policy not on preset course’), confirmation that the Fed has become more sensitive to the “market’s risk concerns” could prove beneficial for global equities and bad for the US Dollar once again.

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