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Dollar Struggles for Direction as Powell Talks Up Support, Stimulus

Forex Oct 06, 2020 02:54PM ET
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By Yasin Ebrahim

Investing.com - The dollar was flat Tuesday as Federal Reserve chairman Jerome Powell reiterated the central bank was in no hurry to stop supporting the economy and warned a slower recovery would keep rates lower for longer.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.03% to 93.57.

"If recovery is slower, rates will be at lower bound for longer; guidance is outcome-based, not time-based," Powell said. The fed chief also called on Washington to roll out a bigger stimulus package and warned of the economic perils of too little stimulus. "Too little support would lead to a weak recovery … Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth," he added.

The ongoing pledge from Powell to keep rates lower to ensure a robust recovery comes just a day ahead of the Federal Reserve's minutes of its September meeting.

Following its September meeting, the Fed held interest rates steady in the range of 0% to 0.25% and signaled no hikes through 2023. The central bank also tied its guidance to its new inflation measure, which allows prices to overshoot its 2% target for some time.

The minutes will be parsed for any further clues into the conviction of Fed members to allow the economy to run hot. In its projections last month, the Fed estimated that inflation would not meet its target 2% through 2023.

Ahead of the release of the minutes, Dallas Fed President Robert Kaplan, who voted against the Fed's decision to leave rates unchanged last month, said he was wary of keeping rates at zero if unemployment and inflation meet the central bank's targets.

“With the new framework and our inflation targets, I think we’re going to be more accommodative than we have been in the past, but I don’t know if we want to be committing to keeping rates at zero until we meet these targets,” Kaplan told CNBC in an interview.

Dollar Struggles for Direction as Powell Talks Up Support, Stimulus
 

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