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Dollar Edges Lower After Powell's Comments Prompted Gains

ForexDec 01, 2021 03:14AM ET
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© Reuters.

By Peter Nurse - The dollar edged lower Wednesday, consolidating after strong gains during the previous session after Fed Chair Jerome Powell indicated the U.S. central bank is likely to speed up the tapering of its asset purchases.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 95.970, after having recorded its biggest monthly rise since June in November on the idea of U.S. rates being hiked sooner rather than later.

EUR/USD rose 0.1% to 1.1337, having dropped as far as 1.1258 on Tuesday, USD/JPY rose 0.2% to 113.37, GBP/USD climbed 0.2% to 1.3316, while the risk-sensitive AUD/USD rose 0.4% to 0.7151, rebounding from a one-year low.

Driving the earlier dollar gains were comments from the head of the Federal Reserve, Jerome Powell, to the Senate Banking Committee on Tuesday.

"At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, perhaps a few months sooner," said Powell, while indicating that it was time to "retire" the word transitory when talking about high inflation levels.

At its November meeting, the Fed said it would reduce bond purchases by $15 billion a month. A move to speed this up would likely bring forward the time the central bank feels confident in raising its benchmark interest rates. 

The dollar had been hit earlier in the week as traders preferred safe havens such as the Japanese yen and the Swiss franc on a burst of risk aversion surrounding the emergence of the omicron variant of the Covid-19 virus. 

Powell's testimony continues later on Wednesday, while the release of the U.S. private payrolls will also be in the spotlight ahead of Friday’s official monthly jobs report.

Elsewhere, USD/CNY rose 0.1% to 6.3661 after the pair earlier fell to a six-month low of 6.3596, with the yuan resilient after the release of better-than-expected official manufacturing PMI data from November. The Korean won also hit a two-week high after stronger-than-expected trade data, the two data releases showing that global manufacturing remained in rude health last month.

USD/TRY fell 0.1% to 13.4557, with the lira edging higher after falling to a record low on Tuesday as Powell’s comments compounded concerns over President Recep Tayyip Erdogan’s drive for lower borrowing costs despite raging inflation.


Dollar Edges Lower After Powell's Comments Prompted Gains

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Chinedu Amankulor
Chinedu Amankulor Dec 03, 2021 11:28AM ET
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stole my ideas: 1. faster taper = earlier hike. 2. not all SAFETY assets are equal (USD, JPY, Gold, CHF, EUR, RE) . some are quite bubbly while sought, others are showing stronger intrinsic value that leads to higher borrowing costs off safety)
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