US dollar nosedives on dovish Fed Powell comments

Philip McHugh December 1st 2022 - 2 minute read

The US dollar tumbled on Wednesday as USD investors were rattled by some surprisingly dovish comments from Federal Reserve Chair Jerome Powell.

Meanwhile, the pound is stable so far this morning, with GBP/EUR buoyed at €1.1603 and GBP/USD flat at $1.2088. GBP/CAD is rangebound at CA$1.6214, while GBP/AUD and GBP/NZD hold steady at AU$1.7767 and NZ$1.9114, respectively.

Looking ahead, will a drop in the core PCE price index extend the US dollar’s losses today?

What’s been happening?

The US dollar was initially undermined yesterday amid a risk-on mood and underwhelming employment figures.

After briefly recovering in the afternoon, the US dollar was sent sharply lower following a speech by Fed Chair Jerome Powell. Powell shocked markets with some dovish remarks, including his suggestion that it makes sense for the bank to begin moderating the pace of its rate hikes.

The euro, also faced headwinds on Wednesday after a larger-than-expected drop in Eurozone inflation cooled European Central Bank (ECB) rate hike bets.

Despite this the single currency was still able to close the day higher, thanks to its negative correlation with the US dollar.

At the same time, the pound stumbled during yesterday’s European trading session, in the wake of comments from BoE Chief Economist Huw Pill.

Pill suggested UK inflation is likely to fall rapidly in the second half of 2023 and rebuffed speculation the bank could raise interest rates as high as 5.25% in the coming months.

What’s coming up?

Coming up today, the spotlight is likely to be on the latest core PCE price index from the US.  Another drop in the Fed’s preferred measure of inflation could weigh on the US dollar as it further undermines rate hike bets.

Also of note to USD investors will be the latest ISM manufacturing PMI. An expected contraction in the US factory sector last month could pile more pressure on the ‘greenback’.

In the meantime, GBP investors will be keeping an eye out for the UK’s manufacturing PMI. November’s finalised figures could see the pound stumble if factory sector growth is revised lower.

In addition to the Eurozone’s own PMI figures, the euro may also be influenced by the Eurozone’s latest jobs data today. Could another drop in the bloc’s unemployment rate help to buoy EUR exchange rates?

Written by
Philip McHugh

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