The US dollar seems to have weakened steadily since Federal Reserve Chairman Jerome Powell's speech yesterday. The EUR/USD major currency pair may be approaching potential resistance at $1.1400.
Powell said yesterday that inflationary pressures will persist until mid-2022 and expects the Fed to raise interest rates and end asset purchases this year, while balance sheet reduction could begin even later. During a hearing before the Senate, Powell also indicated that the Fed could continue with hikes that could begin in 2022 if needed to bring inflation back to target and prevent it from becoming entrenched. The Fed announced at its December 2021 meeting that it would end bond purchases in March, paving the way for three interest rate hikes by the end of 2022. However, the FOMC "minutes" released later showed a more hawkish Fed, which signaled that it may become reasonable to raise the federal funds rate earlier or at a faster pace than previously anticipated.
The Federal Reserve chairman tempered market expectations for a more hawkish approach by acknowledging that the U.S. economy is ready for higher interest rates and quantitative tightening to fight inflation, he said policymakers are still debating an approach to reducing the Fed's balance sheet, which could take up to four meetings to arrive at such a decision. This may have disappointed those who were expecting a very rapid normalization of monetary policy in the US at every level. Hence, the US dollar may have started to lose value, while assets priced in it may have gained value. Gold rose to USD 1820 per ounce, and crude oil to over USD 80 per barrel.
Today, in turn, the key event may be the inflation reading in the United States. According to the consensus, the CPI inflation is to amount to 7 percent, and the core inflation is to increase to 5.4 percent. These data will be published today at 14:30.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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