All eyes were on the US markets as Powell gave his speech

13:57, 08 March 2023

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The FED seems unsure about the latest rate hikes, and the USD continues to trail the EUR

Jerome Powell, the president of the Federal Reserve, made his first appearance before the North American Congress yesterday.

Powell opened his intervention by stating that in order to contain inflation, US interest rates will likely need to rise more than the Federal Reserve previously anticipated.

Powell stated in the prepared statement, "Recent economic statistics have been stronger than anticipated, suggesting that the final level of interest rates would likely be higher than anticipated."

Related article: FOMC Meeting

In addition, Powell stated that the Fed could scale back future rate hikes. This would be an abrupt reversal of his actions during the previous two sessions, when the Fed reduced the amount of its rate hikes from 75 basis points to 50, and then to 25.

The newest inflation data, particularly Personal Consumption Expenditures, which did not indicate a considerable decline, prompted the president of the Federal Reserve to shift his tone. Additionally, other statistics, such as retail sales, demonstrate solid domestic demand.

The only remaining economic statistics that could change the Federal Reserve's "hawkish" attitude are the published employment figures, which should indicate a worsening labor market.

Currently, the number of JOLT's job openings, or available employment, is made public. Imagine that the number of open positions remains high. In that event, the labor market is tight, Powell's most recent comments would be reinforced, and the market would anticipate a rise in interest rates in the near future. The same will occur next Friday with the non-farm payroll data if they exceed expectations.

After Powell's comments, market interest rates (yields on Treasury bonds) rebounded, with the yield on the 10-year bond above 4%. Thereafter, it declined by a few basis points.

Related article: Bonds

Due to the rise in market interest rates, the US dollar rose, pulling the EUR/USD pair below the 1.0600 level.

During Jerome Powell's visit, the price of gold plunged to as low as $26 per ounce, while US indices lost slightly over 1%.

The market is awaiting the release of employment data today and on Friday in order to establish a clearer trend in market assets, which have recently lacked direction.

 

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Sources: Bloomberg, Reuters

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