The US Dollar moved below key 93.00 levels after the virtual speech at Jackson Hole by Fed Chairman Powell. The USD slid 0.6% on Friday, August 27, 2021.
US Dollar Below Key 93.00 Levels
The Dollar Index went to 93.19 levels on Friday, with much expectation from the Jackson Hold virtual meeting, but slid to 92.63 levels, a decline by 0.6% on August 27, and a weekly decline of 1.18% from last week high at 93.74 levels in the foreign exchange.
Hawkish Speech at Jackson Hole by Fed Chairman Powell
In his speech at the Jackson Hole on Friday, Jerome Powell said that rising inflation is a cause for worry, but the country should reach maximum employment before further action can be taken, he says. Though Powell had a hawkish tone in his address at the Jackson Hole Symposium, the forex rates of the Dollar slid on Friday.
Rising prices may continue for longer, says Jerome Powell, Federal Reserve Chairman. But, rate hikes will not come soon, says Powell. Benchmark interest rates are currently at 0% to 0.25%. Interest rates came lower during the pandemic, and it will continue for longer, says Powell, which reflects negatively on the US Dollar Index currency trading.
Powell says it is time to bring down monthly asset purchases by the end of this year. The $120 billion monthly asset purchases have to decrease, he says. The rising Delta variant cases are a cause of concern. The Covid-19 pandemic brought in emergency measures to protect the country from financial disruptions. But now that the vaccination scheme is underway, it is time to bring down the Fed’s asset purchases soon, say officials.
Powell says that once the country reaches maximum employment numbers, interest rates can go up. Further, inflation has to come back to 2%. Though there was a positive note in the Fed chair’s tone, the forex currency exchange saw a deep slide in prices on Friday.
Powell states that though the inflation rate is high, there is no broad-based hike in prices. Only a few sectors are affected by high prices, he says. As the economy reopens and demand increases, sectors like goods and services will drop to normal. Wages are high, but they are not increasing. Car prices are back at pre-pandemic levels, and other sectors will see improvement, he says. A moderation in goods and services will return as the economy reopens and businesses start functioning again.
Experts say that supply chain disruptions and shortages in labor supply will cause inflation to rise, even in 2022. Though job openings are many, people are not willing to work. Cost prices have gone up, say businessmen. The lower sector of the population is the most affected by rising costs. The end-users are bearing the brunt of higher cost prices, criticize analysts.
Federal Vice Chairman Richard Clarida says that tapering measures may start by the end of this year. The labor gains have to continue for the process to begin, he says.
However, experts criticize the Fed’s decision on the interest rate. The Fed is not doing enough to bring down inflation, say investors in the forex market. Critics say that the Fed policy is pulling up current prices. It is at the highest levels, not seen over the past three decades.
Foreign Exchange Market Reaction to Powell’s Speech
The Dollar reversed from the 93.00 levels on Friday, while the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite are at all-time highs.
EUR/USD went to a fresh weekly high as the US Dollar moved lower on Friday in the foreign exchange market. The Euro to US Dollar is back at strong resistance at 1.18, though it closed slightly below, for the weekend at 1.1793. If the Euro can pierce past the 1.18 levels, the currency pair will move to 1.1834 levels this week. The Euro strengthens as a result of Powell’s speech at Jackson Hole. The US Dollar to Euro conversion is at 0.85 Euro.
The GBP/USD closed at the weekly high levels at 1.3800 last week. The weak US Dollar may push the British Pound to USD higher this week. The US Dollar to Pound conversion is at 0.73 Pound Sterling in the foreign currency exchange.
The AUD/USD closed higher at 0.7311 last week. The AU to US Dollar rallied higher after the speech by the Federal Chairman on Friday. Though Powell did not give exact details about the asset tapering, the selling pressure on the greenback pulls the Australian Dollar higher. The US Dollar to Australian Dollar conversion is at 1.37 AUD in the foreign exchange market.
The US Dollar to CAD weakened to 1.2626 levels for the weekend. The weaker Dollar Index has put the forex rates of the Canadian Dollar under pressure. The Canadian Dollar is a commodity-based currency that depends on crude oil prices. If the WTI oil rises to the $70 level, it may strengthen the Canadian Dollar in the foreign currency exchange.
The US Dollar to Indian Rupees crashed on Friday, closing below the 74 levels. The Indian Rupee fell to 93.47 levels on August 27.