The U.S. dollar extended losses versus major rivals Friday as highly anticipated comments by Federal Reserve Chairman Jerome Powell were perceived as somewhat dovish.
In remarks prepared for delivery at the Kansas City Federal Reserve’s annual monetary policy symposium in Jackson Hole, Wyo., Powell said gradual interest-rates hikes remain appropriate and that there was no risk to the economy overheating, but also that he was prepared to do “whatever it takes” to prevent inflation from becoming unanchored in either direction.
Read: Fed’s Powell plays down risk of overheating, still expects gradual rate-hike pace
Also see: Ex-Wall Streeter Powell says Fed needs to nix old-time thinking, raise rates in small doses
The three-word phrase is often associated with European Central Bank President Mario Draghi, who in 2012 pledged that the ECB would do “whatever it takes” within its mandate to preserve the euro. though in the context of supporting the euro
EURUSD, +0.7104%
Powell’s comments were preceded by St. Louis Fed President James Bullard, who told CNBC that the Fed should stay put before raising rates any further. Bullard isn’t a voting member of the rate-setting Federal Open Market Committee this year but will be in 2019.
“Bullard indicated that inflation wasn’t at a level for the Fed to act preemptively,” said Minh Trang senior FX trader Silicon Valley Bank, adding that this created a slightly dovish tone.
“For the remainder of the year, the Fed outlook is pretty unchanged with slightly less certainty for a December hike. But for 2019, there is more uncertainty,” said Bryan Besecker, market strategist at BNY Mellon Investment Management.
The ICE U.S. Dollar Index
DXY, -0.52%
which tracks the currency against a basket of six major rivals, slipped 0.5% to 95.161. The gauge is on track for a weekly loss of 1%, which would be its worst week since February. The WSJ Dollar Index
BUXX, -0.55%
which compares the dollar against a wider basket of other currencies, slipped 0.5% to 89.31.
Read: Here’s how Jackson Hole could impact the dollar, bonds and emerging markets
“But let’s not forget how strong the dollar has been this year,” Trang said. Just last week, the euro, the greenback’s main rival, traded around a 13-month low. “I think we may get one last push in the dollar index this year and it could finish the year around the current level, maybe a little stronger,” he said.-
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The greenback was pressured earlier this week after minutes from the Fed’s recent meeting showed support for a further interest-rate increase in the near term, but also revealed concerns that escalating trade wars could harm the U.S. economy. The latest round of U.S.-China trade talks wrapped up on Thursday with no signs of progress.
The Australian dollar, meanwhile, firmed, retracing previous losses, as some political clouds were clearing and the country got a new prime minister following a leadership struggle.
The Aussie dollar
AUDUSD, +1.0901%
was the biggest mover among developed market currencies, after falling more than 1% Thursday over political squabbles. Malcolm Turnbull, who faced two leadership challenges, was replaced as prime minister by conservative lawmaker Scott Morrison on Friday. Morrison, who was the country’s treasurer up to Friday, gained control of the Liberal Party’s leadership in a ballot of lawmakers.
With some political uncertainty removed, the Aussie rallied to fetch $0.7328, compared with $0.7247 late Thursday in New York.
Elsewhere, reports that the People’s Bank of China would reintroduce the so-called countercyclical factor into its yuan fixing mechanism—a move that is considered supportive of the Chinese currency—led to a yuan rally against the buck.
President Donald Trump previously called China a currency manipulator, while Chinese authorities said they wouldn’t use yuan devaluation as a tool in the trade war between the two countries. The U.S. Treasury has refrained from labeling China a manipulator so far. A weaker domestic currency technically makes a country more competitive on the global market.
One dollar last bought 6.8057 yuan in Beijing
USDCNY, -1.0352%
down 1.1%, and 6.8070 yuan offshore
USDCNH, -1.3084%
down 1.3%. The greenback has fallen against the Chinese currency this week, but is down more than 4% against it in the year to date. Analysts attribute this move to general dollar strength, particularly in the second quarter, as well as weakness in emerging market currencies.
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Source : MTV
