At the Sintra forum, during a panel discussion, Fed Chair Powell said, "We believe there's more restriction coming." He took a tough tone on inflation, expecting more interest rate increases at a faster pace, possibly at consecutive Fed policy meetings.
This reiterates the position of the most recent dot plot projections, which indicate another two rate hikes for 2023. The Fed chair sees inflation running too high, needing higher rates for longer to bring it back down.
The USDOLLAR reacted to the general hawkish tone by moving from its neutral channel, between the blue bands, into its bullish channel between the upper blue and red bands. Its daily RSI is above 50 (green rectangle). This is the bullish side of the oscillator. The longer it maintains on this side of 50, the greater the likelihood of further USDOLLAR appreciation.
The greenback is considered a haven. The central bank hawkishness has resulted in concerned market participants who think that elevated rates for longer will drag the US economy into recession. This has driven some capital into the dollar.
Powell's counterparts at the conference also expressed strong views regarding the necessity of managing inflation.
ECB President Christine Lagarde expressed the belief that there is still progress to be made and indicated a high probability of raising rates in July. Bank of Japan Governor Kazuo Ueda mentioned the possibility of adjusting their extremely accommodative policy if inflation persists, while Bank of England Governor Andrew Bailey emphasized the significance of reducing prices and affirmed his reluctance to raise the 2% inflation target.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.