Federal Reserve boss speech keeps dollar muted in forex markets

dollar billsThe US dollar didn’t rise as much as some traders might have hoped yesterday after the Chair of the Federal Reserve central banking system said that the outlook for interest rates had now changed.

Jerome Powell said that the current policy rate, which sits between 2% and 2.25%, had dropped “just below” the level designated as neutral based on research.

Previously, this was not the case. As the summer was coming to a close, for example, the neutral level was much higher at between 2.5% and 3.5% – a point at which Powell claimed that interest rates could be raised above this level.

Powell’s most recent comments mean that rapid interest rate rises might not be on the cards in the way they were largely expected to be. As a result, the dollar index dropped to 96.69.

However, the greenback was not the only currency to suffer in the markets on Wednesday. The British pound was rocked by claims from the Bank of England that the outcome of Brexit on the currency is likely to be negative.

Before Powell’s comments, the pound dropped in response to the suggestion that a difficult Brexit could lead to a 25% drop in the pound’s value. However, it recovered later when the dollar dropped as well.

As this week begins to draw to a close and a fresh week starts for forex traders, there’s still plenty for the forex markets to look out for.

Today (Thursday) sees the preliminary harmonised index of consumer prices come out of Germany at 1pm. This is expected to show a slight drop from 2.4% to 2.3%.

Data on core personal consumption expenditure for October is due out of the US at 1.30pm GMT. This sort of release carries a lot of significance, as monetary policy decisions by the US Federal Reserve are usually made on the basis of economic health indicators such as these. It is expected that this will drop from 2% to 1.9%, which could contribute to uncertainty.

Canada’s current account information for the third quarter of the year is expected at 1.30pm GMT. The most recent minutes of the US Federal Open Market Committee are expected at 7pm GMT. These are likely to hold some clues as to where the Federal Reserve will go next in terms of interest rates.

The day will be rounded off by Japanese statistics, including the Tokyo consumer price index for November and the October unemployment rate, both of which are out at 11.30pm GMT. The latter statistic is expected to hold firm at 2.3%.

More statistics are due out on Friday to round off the week. The German import price index for October is expected at 7am GMT and is due to drop year on year from 4.4% to 4.2%.

German retail sales data for October is also expected then, and this is due to show a year on year change from -2.6% to +2.7%.

Italian unemployment figures, meanwhile, are expected at 9am GMT. This data will cover October and is expected to hold firm at 10.1%.

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