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Forex - Dollar Downed by Dovish Powell; Sterling Shines

ForexNov 28, 2018 01:20PM ET
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© Reuters. - The dollar swooped lower against its rivals on Wednesday as Fed Chairman Jerome Powell said that interest rates were "just below" neutral, dampening the optimism for a more aggressive rate-hike cycle.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.31% to 96.99.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy ‑‑ that is, neither speeding up nor slowing down growth," Powell said.

With interest rates sitting in a range of 2% to 2.25% and the range of estimates for the neutral rate between 2.5% to 3.5%, RBC said Powell's remarks represented more fact than a dovish pivot, indicating the market reaction was overdone.

"There is no doubt that the market will latch onto the comment where Powell states that rates are 'just below' the neutral range as a dovish development," RBC said in a note.

Ahead of the speech, market participants were keen to get sense of whether Powell would moderate his tone on policy tightening amid ongoing criticism from President Donald Trump.

Trump said he was "not even a little bit happy" with his selection of Powell as Fed chief, asserting that the central bank was "way off-base" with its stance on rate hikes.

Market participants will look to the Federal Reserve minutes from its November meeting slated for Thursday for further clues on whether the Fed's has pivoted to a more dovish stance on policy.

The plunge in the dollar fuelled a surge in both the pound and euro.

GBP/USD rose 0.53% to $1.2814 even as Bank of England governor Mark Carney warned that a "disorderly" exit from the European Union would pressure the U.K. economy into a far worse recession than that experienced after the global financial crisis of 2008.

EUR/USD rose 0.69% to $1.366, while USD/JPY fell 0.22% to Y113.53.

USD/CAD fell 0.19% to C$1.3169.

-- Reuters contributed to this report.

Forex - Dollar Downed by Dovish Powell; Sterling Shines

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