Dollar Weakness Persists Post Powell

Market Drivers July 11, 2019
BOE Financial Stability Report offers nothing new
2nd Day of Powell
Nikkei 0.51% Dax 0.14%
UST 10Y 2.05%
Oil $60/bbl
Gold $1423/oz.

Europe and Asia:
BoE Financial Stability Report
North America:
USD CPI 8:30
USD Powell Testifies to Senate 10:00

It’s been a very subdued night of trade in FX with the exception of USDJPY which tested support below the 108.00 in early Asia trade as dollar selling continued in the wake of surprisingly testimony by Fed Chair Jerome Powell yesterday.

Chairman Powell made it clear that despite relatively strong US growth, the Fed was concerned about the general slowdown in global economic activity, the rising trade tension between the US and the rest of the world and the very subdued level of inflation – all of which has convinced the Fed that further monetary accommodation is necessary.

Instead of hinting at a “one and done” move later this month, Mr. Powell left open the possibility of further easing if the events warranted and his remarks instantly put downward pressure on the dollar. That pressure continued into Asian session trade with USDJPY dropping to a low of 107.85 before finding buyers by London open.

One factor that helped to support the buck was the relative bid in US rates. Instead of collapsing on Powell’s rhetoric US 10Y rates came off the highs but held well above the key 2% level indicating that at least for now long term yields may have bottomed.

Today, Mr. Powell will address the Senate and the market is not expecting any change of rhetoric from the Fed Chair. Ahead of testimony traders will get a look at US CPI data which is forecast to print at 0.2% vs. 0.1% on a core basis essentially confirming the Fed’s view that price pressures remain muted.

For now, FX appears to be in a quiet equilibrium with 108.00 acting as an anchor for USDJPY but if US yields slip below the 2% mark once again USDJPY could test 107.50 as the week progresses.