Dollar Index slammed lower on Powell's comments

Fed Chair Jerome Powell recently made the airwaves, delivering remarks on the economic outlook at Stanford Business School.

Key takeaways from the speech:

• The Fed Chief does not envisage easing policy until there is more confidence regarding the inflation picture but still believes it will be ‘appropriate’ to cut rates at ‘some point’ this year.
• Powell added that the recent economic data do not ‘materially change the overall picture’ and that it is too soon to say whether the recent acceleration in inflation is more than a ‘bump’.
• The Fed has time to assess incoming data before easing.
• Immigration perhaps aided growth last year.
• The speech pretty much ended on the note that policy is in a ‘pretty good place’.

You will recall that the FOMC left the Fed funds target range unchanged at 5.25%-5.50% for a fifth consecutive meeting in March, its highest rate in more than two decades. The majority of Fed officials still favour three rate cuts this year, which was received as moderately dovish, given speculation leading up to the event that Fed officials may downshift to two rate cuts. The March Summary of Economic Projections (SEP) also revealed an upward revision to growth while lowering unemployment projections and largely maintaining their outlook for disinflation.

Recent Fed commentary

We have recently seen a slew of Fed officials emphasise the point that they are in no hurry to decrease rates at this point:

• Speaking at the Economic Club of New York last Thursday, Fed Governor Christopher Waller (a well-known hawk at the Fed) communicated that should inflationary pressures remain persistent, it could be ‘appropriate to reduce the overall number of rate cuts or push them further into the future’ and added, ‘there is no rush to cut the Policy Rate’.
• Waller’s points were, of course, underscored by Fed Chair Powell recently noting that the Fed is in ‘no rush’ to cut rates. Speaking at the Macroeconomics and Monetary Policy Conference in San Francisco on Friday, the Fed chief commented: ‘The fact that the US economy is growing at such a solid pace, the fact that the labour market is still very, very strong, gives us the chance to just be a little more confident about inflation coming down before we take the important step of cutting rates’.
• This week also welcomed several key Fed speakers, including San Francisco Fed President Mary Daly, who remarked that three rate cuts this year are still a ‘reasonable baseline’. Cleveland Fed President Loretta Mester echoed a similar tone but stressed the point that it is a ‘close call’ on whether fewer cuts are needed. However, earlier today, Federal Reserve Bank of Atlanta President Raphael Bostic hit the wires and noted that he expected only one rate cut this year in Q4, referring to the inflation picture.

Market snapshot

Major US equity indexes remained bid on the day, and the US Dollar Index and Treasury yields headed lower (2-year yields clocked session lows). Spot gold (XAU/USD) also spiked to fresh all-time highs of $2,295.

As evident from the monthly/daily timeframes below on the US Dollar Index, price action on the daily scale respected resistance from 105.04 and the unit is on track to shake hands with daily support coming in from 104.15. Rupturing this level would pave the way south to the 200-day and 50-day simple moving averages at 103.78 and 103.86 (note the aforementioned SMAs also just chalked up what is referred to as a Golden Cross, a long-term bullish trend signal), followed by daily support from 102.92.

Given that the trend remains north on both the monthly and daily timeframes, 104.15 support will be a key watch, as will the area between support at 103.62 and the 200-day and 50-day SMAs.