Australian dollar lifts as Fed's Powell spooks the doves

Australian dollar lifts as Fed's Powell spooks the doves

Powell's testimony followed weeks of intense speculation in the market that the US central bank would soon slash borrowing costs for companies and consumers in order to fend off an economic slowdown that some say has been a long time coming, but that has been made more likely by the 2019 escalation of the USA trade war with China. Below are some key takeaways, per Reuters.

"Concerns about the strength of the global economy continue to weigh on the U.S. outlook", Mr Powell said.

CPI and PPI are not the Fed's preferred measures of underlying inflation in the US economy - that designation is reserved for the core personal consumptions expenditures (PCE) price index, released by the Bureau of Economic Analysis (BEA).

This means a July rate cut is nearly certain, by at least 25 basis points, maybe even more, but even James Bullard, the noted dove and St. Louis Federal Reserve President in a speech at the same time as Powell's stated that 50 basis points would be "overdone" and that a 2nd cut later in the year should be enough.

"The line "our baseline outlook is for economic growth to remain solid, labour markets to stay strong and inflation to move back up over time" to 2%, suggests to us that any rate cuts will be precautionary and tentative", says James Knightley, chief worldwide economist at ING Group.

Trump and White House economic adviser Larry Kudlow have publicly harangued Powell in recent months over the central bank's reluctance to lower rates in service of the continued growth that Trump will rely heavily on for reelection. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency.

"Fed not only focused on concerns within the US economy, but also took into consideration the global economy, negative impact from trade wars and basically hitting all the right buttons for gold bulls".

The signs of a pick-up in underlying inflation, along with separate data on weekly jobless claims showing the labor market remained solid, curbed financial market expectations of a more aggressive 50 basis point cut at the Fed's July 30-31 meeting.

"Manufacturing, trade and investment are weak all around the world".

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In his testimony on Wednesday, Powell pledging to "act as appropriate" to defend an economic expansion threatened by trade disputes and a global slowdown.

"We don't have any evidence for calling this a hot labour market", Powell told lawmakers.

"We really have learned though that the economy can sustain much lower unemployment than we thought without troubling levels of inflation".

Asked by Representative Maxine Waters, who chairs the committee, if he would "pack up and leave" if the president demanded it, Powell replied with a curt "no ma'am.

The law clearly gives me a four-year term and I fully intend to serve it".

Traders are now looking forward to Powell's second day on Capitol Hill as well as the release of inflation data, with observers saying a weak reading could revive hopes for a big July rate cut.

Since the middle of May, the dollar index has fallen 1.6%, with the greenback down 2.6% against the yen.

With Fed rate cut odds climbing again, the US Dollar (via the DXY Index) has been knocked lower, keeping the threat of a major US Dollar top in place.

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