Fed chair Powell strikes a cautious note - USD doesn't like it
The market was keenly awaiting comments from the Fed chairman Jerome Powell in NY this evening and he has struck a number of cautious notes which have led to USD selling as it has inevitably led some to question the rate path into 2019.
The Fed chair has said that rates are just below the neutral rate and this suggests the FOMC are closer to a pause that was previously believed. He has also said that there is no preset path, thus underlining data dependency which as we have seen, has been tailing off a little - in part due to higher rates and also a higher USD (recall, widening trade deficit reported this afternoon.
Powell as maintained, however, that there is a great deal 'to like' about the US economy and that he expects solid growth, low unemployment and near target inflation to continue. He also sees no dangerous excess in the stock market - which is just as well, given stocks have rallied hard on his comments, which are seen to be less hawkish and more in line with a steady and softer rate profile going forward.
EUR/USD has rallied hard as a result, pushing aggressively through the 1.1300 mark and extending through to highs around 1.1370 before backing off. Even so, we have taken out the Tuesday highs quite comfortably.
USD/JPY has also fallen back hard after piercing the 114.00 level into the London fix, and we dipped under 113.50 before stabilising. Stock market buoyancy should aid support here for now unless the USD really does start getting unwound. Spec buying has been strong here in recent months so we do not some exposure risk.
Cable has pushed back above 1.2800, though we note resistance into 1.2815-20, where it has duly been contained. Bids are likely to keep this area under pressure.
AUD and NZD have both pushed back up towards their respective cycle highs, though USD/CAD is still way off better levels yet has managed to dip back under 1.3300 again.