EUR/USD. What did Powell say?
Federal Reserve Chairman Jerome Powell put pressure on the U.S. currency at the end of the trading week. The head of the Fed spoke at a conference on the outlook for monetary policy. The very subject of the event said that Powell could voice his stance on the future prospects of the tightening of the monetary policy. These expectations were largely justified. As a rule, the head of the regulator is rather cautious in his statements, but in this case he, surprisingly, voiced very transparent hints.
And these hints did not sit well with the dollar bulls. On Friday, the US dollar index could not hold the height it had reached (103.49) and fell into the area of the 102nd figure (although then the greenback was able to regain some of the lost positions, ending the week at 103.07). Such a reaction of the dollar is quite justified, as the de facto head of the Federal Reserve questioned the expediency of further interest rate increases. Responding to such rhetoric, buyers of EUR/USD managed to return to the area of the 8th figure, closing Friday's trading at 1.0804.
False growth of hawkish expectations
Before returning to Jerome Powell's Friday speech, it is worth remembering that the dollar strengthened its positions last week not only due to the rise in risk-off sentiment, but also due to the strengthening of hawkish expectations regarding the Fed's further actions. The recent statements of several Federal Reserve officials were clearly "hawkish" in tone, supporting the greenback. Despite the slowdown in inflation in the United States, some central bank officials did not rule out further monetary policy tightening, lamenting the still high level of the core consumer price index.
In particular, the head of the Dallas Fed, Lori Logan, recently stated that incoming data "support an interest rate hike at the next meeting". This position was voiced in one interpretation or another by other representatives of the US regulator - for example, Loretta Mester, Thomas Barkin, Raphael Bostic, and John Williams.
The market reacted to the toughening rhetoric in a corresponding manner: according to the CME FedWatch Tool, the probability of a 25-point rate increase in June rose to almost 40%. For comparison, it is worth noting that at the beginning of May, the chances of implementing a 25-point scenario were estimated at 5-8%.
Therefore, Jerome Powell's messages yesterday indeed served as a "cold shower" for the dollar bulls.
A cold shower for dollar bulls
In essence, the Fed Chair once again "highlighted" the relevance of the banking crisis in the US, linking recent events to the aggressive policy of the American regulator. According to him, the recent "banking stress" has led to tighter credit standards and weakened the need for interest rate hikes. In this context, he stated that he does not consider it necessary to bring the rate to the previously planned value. To quote him verbatim, the phrase sounded like this: "The interest rate, perhaps, should not be raised as much as we wanted earlier." At the same time, he expressed concern about the consequences of the decisions already made. According to Powell, there is currently uncertainty regarding the "delayed consequences of the measures already taken," as well as the degree of credit tightening as a result of the recent banking crisis.
As a "cherry on top" - a summarizing phrase from the Fed Chair that the Federal Reserve can now afford to assess the effectiveness of the measures taken, "to draw conclusions about the future prospects of monetary policy."
I remind you that back in March, after the crash of the largest bank in Silicon Valley in the US (Silicon Valley Bank), and the subsequent bankruptcies of Signature Bank and Silvergate Capital Corp, First Republic, rumors arose in the market that the Federal Reserve might refrain from raising interest rates at subsequent meetings. Moreover, some experts voiced cautious assumptions about a possible step back, in the context of a rate cut.
But contrary to "dovish" forecasts, the American regulator still raised the rate - both at the March meeting and in May. Core inflation, which unexpectedly resumed its growth, forced the Federal Reserve to take countermeasures, despite existing risks.
As of today, judging by the tonality of Powell's rhetoric, the Federal Reserve is once again concerned that a further increase in the interest rate will cause a new wave of bankruptcies of American banks. By the way, the situation with PacWest is another "alarm bell" - another bank in the US is on the verge of closure.
Conclusions
The head of the Federal Reserve "sobered up" traders who were too trustful of the hawkish statements of some Federal Reserve representatives (many of whom, by the way, do not have voting rights this year). The likelihood of a rate hike at the June meeting has dropped sharply - from 40% (before Powell's speech) to 17% (after the speech).
Overall, the greenback has lost an important trump card. The dollar strengthened its positions thanks to two factors: the growth of risk-averse sentiments (threat of US default) and the increase of hawkish expectations (likelihood of a rate hike at the June meeting). On Friday, dollar bulls essentially lost one "flank" - and quite an important one under the circumstances. After all, as soon as US politicians resolve the issue of raising the US debt ceiling (which I personally do not doubt), the market will, first, see increased interest in risk, and second, "classic" fundamental factors will come to the fore, many of which are not on the greenback's side.
Therefore, Powell's Friday speech will still play its role in the fate of EUR/USD - but only when the negotiating saga in Washington finally ends with a traditional happy ending.
News are provided by InstaForex
Read More
https://ifxpr.com/42Shm6a
G), which shed 2.55 points or 1.64% to end the session at 152.53. UnitedHealth Group Incorporated (NYSE:UNH) was up 5.58 points or 1.15% to close at 479.23, while Merck & Company Inc (NYSE:MRK) was down 0.76 points ( 0.66%) and finished trading at 114.00. 
