Powell’s Speech Drags US Dollar Lower

In his first public appearance and remarks on the US economy since the post-FOMC policy decision press conference on November 2, where he warned of a higher terminal rate, Fed chair Jerome Powell said on Wednesday that it would “make sense to moderate pace of interest rate hikes”.

Since the November 2 presser, markets have tuned into other Fed officials who have been framing the bank’s message. There have been conflicting tones from officials with, for instance, Fed vice chair Lael Brainard who has played up the move to smaller hikes, while others such as St Luis CEO, James Bullard, have played up the need for even higher rates.

The dollar index, DXY, fell on the initial release of the speech from the 107 area to test below 106.70. It remains above the low made of 106.29 on the day but was below the 20-year high of 114.78 on Sept. 28. The greenback is on track for its biggest monthly loss since September 2010 as investors look toward the Fed reaching a peak rate early next year.

Key Quotes

Time to moderate pace of rate hikes may come as soon as December meeting.

Have made substantial progress toward ‘sufficiently restrictive’ policy, have more ground to cover.

It seems to me likely ‘rates must ultimately go ‘somewhat higher’ than policymakers thought in September.

Likely to need to hold policy at restrictive level ‘for some time’.

History cautions strongly against prematurely loosening policy.