The US dollar is taking a breather in today’s trading session after yesterdays solid gains on the back of a speech to congress by US Federal Reserve President Jeremy Powell who noted the market should get ready for interest rate hikes as the year unfolds.
The Fed chairman brushed off concerns over the ongoing trade war between the US and China and said the US economy was in great shape with the jobs market reaching near full employment and inflation sitting near the Fed’s target rate.
"Earlier in the expansion, as the economy recovered, the need for highly accommodative monetary policy was clear," noted Mr Powell
"But with unemployment low and expected to decline further, inflation close to our objective, and the risks to the outlook roughly balanced, the case for continued gradual increases in the federal funds rate is strong." He added.
The market is currently predicting 2 more rate hikes from the Fed this year but some are not discounting a 3rd move and as more investors begin to believe this scenario the US dollar is only going to go from strength to strength.
"For now, the market is of the view that the Fed is not overly concerned with the impact that a trade war could have," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"The comments from the Fed have put the focus on the divergent policy outlook between the Fed and other central banks. We're seeing that play out with the stronger dollar," he added.
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