US dollar is correcting after J. Powell’s speech in Congress

15 July 2021

Andrey Maslov, analyst of FG “FINAM”

On Thursday, July 15, EUR / USD rallied 0.08% to trade at 1.1844. The DXY dollar index is correcting and declining 0.06%, staying at the level of 92.33. The American currency is correcting after the speech of the head of the Federal Reserve, Jerome Powell, who once again insisted that it is too early to curtail the support of the economy from the regulator.

Recently released data on consumer prices in the United States for June showed an increase of 5.4%, while producer prices rose 7.3%, which added investor optimism that the Fed’s rhetoric may change and it is time to wind down the bond buying program.

However, on Wednesday, during his speech in Congress, the head of the Federal Reserve Jerome Powell once again stated that the rise in inflation in the United States is a temporary phenomenon, stressing that it would be a mistake to act prematurely, and that the economic conditions for winding down the purchase of bonds “are still far from necessary.” … At the same time, the head of the Fed warned that the regulator will act decisively if inflation is stable and significantly exceeds the target level of 2%. It is also worth noting that the Fed chairman will return to Capitol Hill later today to discuss the country’s economy later. Before Powell’s speech, weekly data on initial jobless claims is due, which remains an important metric for the Fed, given the focus on the labor market recovery to 7.5 million jobs in early 2020.

At the same time, former US Treasury Secretary Steve Mnuchin, responding to Powell’s words, said in an interview with CNBC that he does not believe that the observed rise in inflation is a temporary phenomenon. Mnuchin believes the Fed should be more careful to keep inflation under control.

In addition, the dollar weakened less than was possible due to the rise in coronavirus cases in Southeast Asia, as well as the UK and the US, even though most of the restrictions in the latter were lifted.

As for macroeconomic statistics, yesterday in the US the data on the producer price index for June became known, which increased by 1% (m / m), which turned out to be higher than both the May result of 0.8% (m / m) and analysts’ forecasts. at 0.6% (m / m). In the eurozone, data on industrial production was released, which in May fell by 1% (m / m), which was significantly lower than the April growth of 0.6% (m / m), as well as the forecast of a decline from analysts by 0.2% ( m / m).

Today it is worth paying attention to the publication of data in the US on the index of business activity in the industrial sector from the Federal Reserve Bank of Philadelphia and New York for July, price indices for exports and imports, as well as industrial production for June. In addition, today there will be weekly data on initial applications for unemployment benefits.

EUR / USD is above the 1.1800 support level, trading at $ 1.1844 per euro. Stochastic lines are directed downwards, however, they are starting to slow down, which speaks in favor of consolidation in the short term.

This information is not investment advice.

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