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Federal Reserve Chairman Powell’s hawkish words are significantly weighing on market sentiment as broadly expected. Wall Street extends losses ahead of the opening, hinting at more risk-off trading. The EUR/USD pair is technically neutral in the near term and could correct lower once below 1.0890.
The EUR/USD pair keeps trading within familiar levels this Wednesday, hovering in the 1.0910/20 region. The market mood remains passive, as reflected by global stocks trading in the red.
Investors anticipated more hawkish words from Chairman Powell during his semiannual testimony, hoping he would offer some guidance about the future interest-rate path. With inflation far above the 2% central bank’s target and the labor market still tight, additional hikes seem logical. Yet, at the same time, monetary tightening could lead to a crisis in the financial system and a recession. Powell walks a slippery road and needs to balance his words to avoid spurring panic.
Powell prepared remarks showed that policymakers pay attention to recent indicators suggesting economic activity expands at a modest pace after slowing significantly last year. At the same time, the document shows they still consider the labor market is “very tight.” Also, nearly all FOMC participants expect it will be appropriate to raise interest rates somewhat further by year-end. Finally, policymakers noted they would continue to make their decisions meeting by meeting based on incoming data, implications for outlook and balance of risks.
