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May 02, 2019
Powell's statement at the latest press conference showed the Fed was not worried about decreasing the inflation rate, because it was only triggered by temporary factors. The US dollar jumped quite significantly against other major currencies following the statement of the Fed Chair, Jerome Powell, who said that the central bank's attitude was right now.
The statement was able to dim the prospect of cutting interest rates this year, which over the past few days has continued to weigh on the movement of the US Dollar. The strengthening of the US Dollar is reflected in the movement of the DXY Index which measures the strength of the USD against six other major currencies. DXY is currently in the range of 97.59, after surging to 97.73 shortly after Jerome Powell's press conference.
Previously, the US Dollar had been mired in the ISM Manufacturing PMI report which fell from 55.3 to 52.8 in April. However, the gloomy Uncle Sam's domestic manufacturing data last month was at least offset by a surge in the ADP Employment Change report of 275k.
After holding a two-day meeting, the FOMC on Thursday announced earlier this morning that it would keep its benchmark interest rate at around 2.5 percent. Another thing that became a market mover was Jerome Powell's statement that the market was considered to be hawkish and sounded quite optimistic.
"We think the current policy is right and we don't see any compelling reason to shift policy in either direction (either Rate Hike or Rate Cut)," Powell said. In addition, Powell also said that the recent weakening of US inflation was caused by temporary factors, so Powell did not imply his concern about the prospect of inflation this year. Powell's statement seemed to ignore President Trump's insistence that the Fed would cut interest rates as soon as possible amid low inflation rates.
"The US dollar turned higher after Powell confirmed that the factors that suppressed the inflation rate were only temporary. The statement was immediately digested by the market as a Fed statement that was hawkish rather than dovish," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. After Powell's statement on Wednesday, this year's Fed Cut Rate projection seen from the CME Group's FedWatch data was around 55 percent, down from the 66 percent level that was touched on Tuesday.
The increase in US PPI to the highest level since 2015, becomes energy for bullish US Dollar. The currency strengthened more than half a percent against the Yen. The US dollar strengthened against other major currencies, helped by the data of the US economy is brilliant. Speech from Fed Vice President Richard Clarida who confirmed his dovish minutes of the FOMC meeting released in the previous session, did not affect much of the US Dollar buying action carried out by investors.
The US Department of Labor reported that the Producer Price Index (PPI) rose 0.6 percent in March 2019, towards 117.9 index points, the highest since October 2018, and even since May 2015. The gain also beat expectations for a 0.3 percent increase, from producer inflation previously at the level of 0.1 percent. The increase was due to the skyrocketing prices of goods to 1 percent because of an increase in energy tariff increases of 5.6 percent.
Not only producer inflation, the weekly unemployment rate (Initial Jobless Claim) also recorded a decline. The number of applicants for unemployment benefits decreased by 8,000 to 196,000, in the week ended April 7. This number broke expectations that predicted an increase. Both reports strengthened the US Dollar which was previously suppressed by the pessimism of the Fed's rate hike this year.
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