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3 July 2024 | FXGT.com

Powell’s Comments Trigger USD Decline, Market Eyes Fed Minutes and ISM PMI

  • US Dollar performance: The US Dollar Index saw minor losses during Wednesday’s European session, dropping below 105.60. The US dollar was influenced by higher-than-expected JOLTS figures on Tuesday and Jerome Powell’s comments on the inflation outlook.
  • Optimism on U.S. Rate Cuts: Fed Chair Jerome Powell’s comments have sparked optimism for upcoming rate cuts. Jerome Powell noted “significant progress” on inflation and suggested that the U.S. central bank may start its easing cycle later this year. His remarks were perceived as dovish, triggering an intraday decline for the US dollar.
  • Jerome Powell’s remarks: Jerome Powell expressed confidence in the inflation outlook, noting that wage increases are moving towards sustainable levels, indicating a cooling labour market. He suggested that inflation might return to 2% by late next year or the following year, despite a slower-than-expected disinflation rate.
  • Balancing Risks and Data Dependence: Powell emphasized the importance of balancing risks between inflation and employment, highlighting the need for more data before considering interest rate cuts, making upcoming inflation readings crucial. While the 12-month inflation rate is at 2.6%, the Fed remains cautious to avoid premature actions that could undermine inflation control.
  • Focus on Inflation Data: Powell’s remarks have generated optimism about a possible September rate cut. He stressed the significance of upcoming inflation readings, and today’s FOMC minutes might provide further insights into the Fed’s strategy.
  • JOLTS report: Powell’s comments offset data from the JOLTS report, which showed U.S. job openings increased in May to 8.140 million, higher than the expected 7.910 million. Following these developments, U.S. rate futures have priced in a 65% chance of a rate cut in September.
  • Eurozone outlook: ECB President Lagarde stated that the euro zone is “very advanced” on the disinflationary path but still has “question marks” regarding economic growth. She indicated that the ECB needs more time to conclude that inflation is on a firm path to 2%, suggesting that rate cuts by the ECB are not imminent.
  • Upcoming key data: Key upcoming events include the ISM Services PMI later today. Minutes from the Fed’s June meeting, also due today, could provide insights into the central bank’s rate strategy. The US market will close early today and remain closed tomorrow for US Independence Day bank holiday. The highlight of the week will be Friday’s NFP report.

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