Powell’s Impact: Powell’s Caution Dips The Dollar As Rate Adjustments “on Hold”

The US Dollar Index (DXY) continued to trade with losses for the second consecutive session on Tuesday, hovering above the 108.00 mark without clear direction. Federal Reserve Chair Jerome Powell’s recent testimony signaled no urgency to adjust monetary policy, leading to a cautious market stance. The CME FedWatch Tool indicates that markets are pricing in a hold at the upcoming March meeting.

Market Movements: Powell’s Testimony Impact

The primary market mover on Tuesday was Powell’s testimony before Congress. Contrary to expectations, it wasn’t as hawkish, potentially weakening the US Dollar. Powell emphasized a data-dependent approach, confirming no immediate changes to policy and maintaining the 2% core inflation target. He acknowledged that inflation remains somewhat elevated but stressed patience in adjusting monetary policy. Additionally, Powell highlighted concerns over long-term rates, attributing their movement to fiscal deficits and inflation expectations.

Equities and Yields Response

Following Powell’s testimony, equities remained mostly flat as investors digested his neutral stance on interest rates and trade. The CME FedWatch Tool indicates a 90% probability that the Federal Reserve will maintain rates at 4.25%-4.50% in March. Meanwhile, the US 10-year yield climbed towards 4.55%, extending its rebound from a year-to-date low of 4.40% reached last week. The Fed’s sentiment index on the daily chart suggests that the bank’s hawkish tone has eased somewhat.

Technical Outlook: DXY Analysis

The US Dollar Index is struggling to maintain momentum, slipping below the 20-day Simple Moving Average (SMA) around 108.50. The Relative Strength Index (RSI) is drifting lower, approaching bearish territory below 50, signaling declining momentum. The Moving Average Convergence Divergence (MACD) histogram is turning negative, indicating growing bearish traction.

Immediate support for the DXY lies at 108.00, followed by the psychological level of 107.50. On the upside, resistance is seen at 108.80 and the 109.20 zone, which could cap short-term rebounds.

Powell’s cautious stance on monetary policy has softened the US Dollar, impacting market dynamics and setting the stage for continued careful observation of economic indicators. The market’s response to this stance will be crucial in the coming weeks as investors and analysts closely monitor any shifts in economic data and policy signals.