Jerome Powell’s Dovish Speech Affected U.S. Dollar

The U.S. dollar suffered losses on Monday morning in Asia in the wake of Federal Reserve Chair Jerome Powell’s speech on bond tapering at the Jackson Hole Symposium on Friday.

The U.S. dollar index that tracks the U.S. currency against a basket of other currencies fell 0.06% to 92.640. 

The USD/JPY pair fell 0.06% to 109.76. 

The AUD/USD pair declined 0.10% to 0.7303 while the NZD/USD pair dropped 0.08% to 0.6999.

The USD/CNY pair dropped 0.05% to 6.4678 with Caixin Manufacturing Purchasing Managers Index (PMI) due in two days. 

The GBP/USD pair gained 0.04% to 1.3769.

Dollar and Fed Chair Jerome Powell

Last week, Federal Reserve Chair Jerome Powell suggested that the central bank is likely to begin withdrawing some of its easy-money policies before the end of the year. However, he still sees interest rate hikes off in the distance. 

He also mentioned that the economy reached a point where it longer needs as much policy support. That means the central bank likely will begin cutting the amount of bonds the Fed buys each month before the end of 2021. Powell’s speech most likely will continue to affect the U.S. dollar in the coming days as well. 

In his speech, Fed Chair noted that the Delta variant represents a near-term risk to getting back to full employment. But Powell insisted that the prospects are good for continued progress toward maximum employment. 

Powell also explained why he continues to think that the current inflation rise is transitory. He thinks that the current inflation will decline eventually to the target level. Fed Chair added that some of the factors that pushed inflation higher are starting to dwindle. But several regional Fed presidents in recent days stated that they see lasting pressures in their districts. 

Fed Vice Chair Richard Clarida also agrees with Powell’s comments. Nevertheless, neither official set a specific date for when the process will begin.