Hawkish Powell testimony rattles markets, money rotates towards safety of USDOLLAR


The dollar jumped on a hawkish testimony from Fed Chair Jerome Powell before the Senate Banking Committee. He said that "inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee" and that recent economic data is "stronger than expected." This is in contrast to his comments in February when he spoke of the disinflationary process.

The Fed chair warned that it "suggests that the ultimate level of interest rates is likely to be higher than previously anticipated." The CME FedWatch Tool suggests a possible fed funds rate target range by year end could be 550-575 bps. That is 100 bps higher from the current.

Powell warned that "if the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes." On Friday, US jobs data will be released and next Tuesday, 14 March, the CPI is scheduled.

Economists expect between 200K-225K to have been added in February, down from January 517K. Another blowout figure will rattle the markets, after yesterday's testimony.

The markets have turned risk-off. Higher yields add a pressure to the present value of risk assets. The US 10-year real rate has gapped up on the hawkishness, with FXCM's USDOLLAR index pushing higher. The correlation coefficient between the two is a robust 86%. Capital is seeking the safety of the greenback as the market comes to terms with the Fed's monetary policy.

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Russell Shor

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.

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