Powell Testimony Reveals Dovish Policy Tilt
This dovish tilt has had a notable impact on risk sentiment, sending global stock markets, commodities, and the commodity currencies higher, while the US Dollar and other safe-haven currencies such as the Swiss Franc and Japanese Yen sold offby saying he is confident that the US economy is now in a condition to successfully weather a series of interest rate hikes, which are widely expected to be implemented over the remainder of 2022, and a rundown in the Fed’s asset holdings.
A further reason that Powell’s comments seem to have successfully boosted risk sentiment is that they contradicted more hawkish comments his colleagues, such as Atlanta Fed Chair Raphael Bostic, have made in recent days.The initial market reaction to Powell’s comment was very clear: stocks, the, commodities, and commodity currencies such as the Canadian and Australian Dollars were moderately higher, while the US Dollar, Swiss Franc, and Japanese Yen all weakened.
The reason for this weakening of clear direction is probably the fact that highly important US CPI data will be released towards the beginning of today’s New York session. The consensus forecast expects a month on month increase of 0.4%, slightly lower than last month’s 0.5% increase.Traders will probably do best by closing any open positions which are trading sideways ahead of the US CPI release, and then watching closely the market impact of the release after one-hour passes.
If the selloff in the US Dollar and the boost to stocks and commodities finds new momentum, this will likely be significant and suggest that markets will continue in the same direction over the rest of this week
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