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US Greenback Rallies on Powell’s Hawkish Remarks, Fed’s Stern Resolve to Tame Inflation


US DOLLAR OUTLOOK:

  • The U.S. dollar rallies on Wednesday after the Fed chairman presents hawkish feedback at an ECB hosted summit
  • Powell says that the FOMC is dedicated to deliver inflation all the way down to 2% and that the method might contain some ache
  • This text explores key technical ranges to observe within the DXY index over the following few days

Most Learn: Japanese Yen Price Action Setups – USD/JPY, EUR/JPY, GBP/JPY, AUD/JPY

The U.S. greenback, as measured by the DXY index, rose as a lot as 0.45% to 104.95 on Wednesday after the Federal Reserve chairman supplied hawkish remarks on the ECB summit held in Sintra, Portugal. Throughout a panel that additionally included Christine Lagarde and Andrew Bailey, Jerome Powell reiterated in no unsure phrases that the Fed is dedicated to utilizing its instruments to deliver inflation all the way down to 2% and that it’ll not enable the financial system to maneuver to a highly inflationary environment.

Powell additionally shrugged off considerations about market indicators, reminiscent of these emitted by the yield curve, noting that the financial system is in good condition and properly positioned to resist larger borrowing prices. Requested about threats of tightening of monetary situations, the FOMC chief admitted that it’s attainable the financial institution may go too far, however that it will not be the primary danger, acknowledging that the largest mistake could be not restoring worth stability and permitting expectations to turn into unanchored.

Powell’s phrases present that the Fed is laser-focused on taming sky-high inflation and is prioritizing this a part of its mandate, an indication that policymakers have each intention of transferring forward with their plans to front-load hikes within the coming months, even when the forceful measures imply some ache and a hard landing for the economy.

Whereas U.S. authorities charges have begun to reprice decrease in current weeks on bets that the U.S. central will relent and again off its aggressive hiking cycleas soon as the downturn turns into insufferable, Powell didn’t validate these assumptions or give any indication that the financial institution will blink. Towards this backdrop, Treasury yields may resume their ascent at any time, particularly if the inflation profile continues to deteriorate, suggesting that the U.S. greenback stays properly positioned to take care of management within the foreign money market.

US DOLLAR TECHNICAL ANALYSIS

After encountering help within the 103.80 space earlier this week, the U.S. greenback (DXY) has gathered energy to rebound over the previous two classes, advancing in direction of key resistance on the 2022 highs close to 105.75. If bulls handle to push the index above this barrier within the coming classes, bullish momentum may speed up, setting the stage for a rally in direction of 106.60. Then again, if sellers regain management of the market and costs reverse decrease, preliminary help rests at 103.80/103.60. If we see a drop under this technical ground, the main target shifts to trendline help close to 102.50.

US DOLLAR (DXY) TECHNICAL CHART

US Dollar technical chart

DXY Index Chart Prepared Using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX





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