US Dollar unphased by hawkish Powell as the Fed Chairman heads to Capitol Hill

The US Dollar holds its gains but cracks on pressure in Central-Europe even after the Powell speech has been published.
Traders will hear from US Fed Chairman Powell during his semi-annual testimony, while the speech itself has been published.
The US Dollar Index books gains above 102.50 but faces nearby resistance.

The US Dollar (USD) is not changing its battleplan after the press release of US Fed Chairman Jerome Powell's speech for the House Financial Service panel later thoday, with as result yet again a big batch of Asian currencies being outpaced by the Greenback, while European and Scandinavian currencies are rather reluctant to bow for the US Dollar bulls. Biggest loser is the South Korean Won which is losing nearly 1% intraday, followed by the Taiwan Dollar. Throughout this week, housing data is the key theme and this Wednesday is no different, with the Mortgage Market Index jumping higher.

Although there are only two Fed speakers today, one of them will be the most important to listen to this week. US Federal Reserve (Fed) Chairman Jerome Powell is to take the stage in the semi-annual House Financial Service Panel. In the already published speech, Powell reiterates that that 'lowering inflation back to 2% has a long way to go' and that the 'interest-rate pause is expected to be termporary', while 'nearly all FOMC participants expect it will be appropriate to raise interest rates somewhat further by year end'. Again a hawkish brief from Fed's Chairman Powell. The second Fed speaker today will be Federal Reserve Bank of Chicago President Austan Goolsbee, who will speak at a global food forum at 16:25 GMT.

Daily digest: US Dollar lingers as pusblished speech confirms hawkish tone

EU to adopt an 11th sanctions package against Russia with this time a focus on United Arab Emirates, Armenia, Kzakhstan and several other central Asian countries that deliver technologie and equipment used on the battlefield by Russia.
The speech that Fed Chairman Powell will deliver at 14:00 GMT remains hawkish with the clear message that more hikes are to come and that the Fed is deviating from its projected 2% inflation target. The House Financial Services Panel will of course have plenty of questions for the Fed Chairman, with his comments or answers possibly moving the markets in a certain direction.
A rather mixed picture on the map when looking at the US Dollar performance. A firm stronger USD in Asia with biggest loser the South Korean Won. In Europe and Scandinavia all pairs look rather flat for the day in their performance against the Greenback, while Central-Europe is even taking the upper hand on the US Dollar with Russian Rubble up 0.5% and Polish Zloty gaining 0.25% as biggest gainers while the European session is going into the last few hours of trading for today.
China is furious after US President Joe Biden called China's President Xi Jinping a dictator. The unfortanute comments from President Biden are coming just one day after US Secretary of State Antony Blinken visited Beijing the first time since 2018, in order to support the dialogue between the two nations.
The PBoC fixed its China Yuan weaker against the USD at 7.1795.
The Bank of Japan (BoJ) has released its minutes and committed to its monetary easing.
Several Chinese media outlets have reported China will bring further interest-rate and Reverse Repo Rate (RRR) cuts this year.
On the data front, US Mortgage Bankers Association (MBA) came out at 11:00 GMT. The Purchase Index jumped to 165.6 from 163.2 previous week. The Mortgage Market Index jumped from 208.8 to 209.8 for the week and the Refinance Index declined from 434.1 to 425.1. The overall Applications for the week declined, but were still positive from 7.2% last week to 0.5% this week.
US Fed Chairman Powell testimony will start at around 14:00 GMT. His speech will be published just minutes before he takes the stage at the House.
The US Treasury is tapping the markets again for a 4-Month bond placement at 15:30 GMT and another 20-year bond placement at 17:00 GMT.
Equities are looking for direction as the US Dollar strength limits any big uprises in European equities for the moment. Biggest loser today for now is China where the Hang Seng closed nearly -2% lower while European stock markets flat. US Equity slightly lower for today.
The CME Group FedWatch Tool shows that markets are pricing in a 79.4% chance of a 25 basis points (bps) interest-rate hike on July 26th, increasing from 74% on Tuesday. Markets seem to be pricing in just one more hike while all other futures for 2023 are pointing to an unchanged rate level. The market is challenging the view of the Fed’s Dot-Plot curve, which showed most Fed members see two more hikes this year.
The benchmark 10-year US Treasury bond yield trades at 3.75%, lower than the 3.82% seen on Tuesday. Investors are parking their money in bonds, pushing bond prices higher and driving bond yields lower. US bond prices and yields have not been making big waves today in light of the US Fed Chairman Powell speech.

US Dollar Index technical analysis: DXY unphased by Powell speech

The US Dollar is not showing a unified front against most currencies as a clear regional effect can be defined. The Greenback is advancing in Asia, while losing ground in Central Europe and being unphased in Europe and Scandinavian countries. This results in the US Dollar Index (DXY) unable to advance higher, but still hold on to gains around 102.50. A break above Tuesday’s high at 102.78 would see more US Dollar strength toward the end of this week.

On the upside, the 55-day Simple Moving Average (SMA) at 102.57 should be flipping back into support in case US Dollar bulls are able to trigger a daily close above. Should the DXY recover further today or this week, look for the 103.00 psychological level as the next big challenge to the upside. The 100-day SMA at 103.06 will be key to reach should the DXY want to advance further.

On the downside, the psychological level near 102.00 is the only element upholding DXY. Once price action starts to reside below it, expect to see another nosedive move toward 100.82. That means a challenge for the low of this year and would imply a substantial devaluation for the Greenback to come.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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