The U.S. dollar strengthens against its major competitors on Tuesday. This followed a speech by Federal Reserve Chair Jerome Powell who downplayed expectations for more significant interest rate cuts. His comments pushed back against aggressive easing bets. This shift in tone gave the dollar a boost, particularly against the Japanese yen, which steadied after two volatile days.
During a conference in Tennessee, Powell adopted a more cautious tone regarding future rate cuts. He indicated that the Federal Reserve would likely continue with gradual quarter-percentage-point cuts. According to Powell, the committee does not feel the need to rush into deeper cuts, which directly impacted market sentiment.
However, traders still anticipate a rate cut in the November meeting. Initially, expectations for a 50 basis-point cut were higher, but they have since dropped from 53.3% to 35.4%, based on the CME Group's FedWatch Tool. This reflects the market's reaction to Powell's tempered outlook on more significant reductions.
The Japanese yen hovered around 144.27 per U.S. dollar after experiencing fluctuations earlier in the week. These fluctuations were fueled by political developments in Japan as the nation welcomed its new prime minister. The market perceived incoming Prime Minister Shigeru Ishiba as a monetary policy hawk. This perception briefly strengthened the yen but was offset by Powell's speech.
Meanwhile, the Australian dollar edged closer to Monday’s high after strong domestic retail sales data. The positive data gave a slight boost to the currency, even as global economic uncertainties continued to linger. The Euro traded near its one-week low, weighed down by falling German inflation, while the New Zealand dollar dipped slightly.
The upcoming days will be crucial for the dollar’s trajectory, with several important data releases on the horizon. This includes the Institute for Supply Management's (ISM) manufacturing index and non-manufacturing report, as well as the monthly U.S. jobs report. If these data points exceed expectations, analysts believe the dollar could see a temporary rise before continuing its downward trend.
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The U.S. dollar strengthens after Federal Reserve Chair Jerome Powell's speech pushes back against aggressive rate cuts.
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