Dollar Nervous as Fed Boss Speech on the Cards for Today

Camila Martinez

The US dollar dipped in value a little in the run-up to Friday as investors await the outcome of a speech from the leader of the Federal Reserve.

Jerome Powell, who heads up the Fed, will be speaking at a conference for global central bankers which will be held in Jackson Hole, Wyoming. He is due to take the stage at 14:00 GMT.

Powell has found himself on the receiving end of criticism from US President Donald Trump in recent months. Trump is said to be angry at Powell and his colleagues’ apparent plans to keep on pushing interest rates up, as, in Trump’s view, this runs the risk of harming the economy.

Presidents usually attempt to avoid antagonising the Fed or interfering with its activities, as it is technically independent and interference is often seen as a recipe for economic problems. However, as with many aspects of Trump’s presidency, that convention appears to have been set aside.

While the dollar saw some positive performance earlier this week in the face of rising tariffs between the US and China, the rise was short-lived as the Powell speech loomed.

The dollar index, a tool which monitors the relative performance of the dollar against other major currencies, dropped by 0.2% to around 95.5.

It is worth noting, however, that the market power of the dollar is such that even short-term negative performances do not usually indicate wholesale problems. At the same time as the dollar index’s decline, for example, the dollar itself rose by 0.7 in the USD/JPY pair.

Analysts are uncertain what Powell’s speech may hold. It appears unlikely that he will indicate that the Fed wants to cancel its proposed increases, although he may opt for a carefully worded option. He may clarify that rises will only be on the way provided there continues to be strong economic data coming out of the US.

More broadly, there are currently four vacancies on the Fed’s key decision-making panel – and Trump will be responsible for filling all of them. Provided they get approved by the Senate, it appears likely that Trump will have assigned almost the whole committee by the time the process is complete.

In addition, the US and China’s ongoing trade row did not appear to be about to abate, despite talks between the two nations taking place this week.

Government officials from both sides met in Washington DC on Wednesday and Thursday, although the stalemate seemed to largely persist.

The meeting was timed badly with the imposition of $16bn of new tariffs by the US against China on Thursday. China responded in kind straight away.

One of the winners of the dollar’s dip, however, was the euro.

It went up by 0.2% to $1.1563 on Thursday, representing a victory for the currency, especially given that it had lost a substantial amount the day before and was battling internal political turmoil over provocative immigration comments made by Italy’s deputy Prime Minister Luigi Di Maio.

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Camila Martinez
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