The dollar index fell on Friday after Fed Chair Jerome Powell indicated there was still work to do on employment gains even though inflation had met the test for substantial further progress on inflation, questioning market assumptions that an asset tapering announcement could come as early as September.
Heading into Friday's close, the dollar index was trading was down 0.39%, marking a reversal of gains recorded before Powell spoke on the back of hawkish taper rhetoric from Cleveland Fed President Loretta Mester, Philadelphia Fed President Patrick Harker and Atlanta Fed President Raphael Bostic.
The dovish lean by Powell, and potentially longer lead-up to tapering, weighed on the dollar as yields dropped on the prospects that delayed stimulus reduction could also push rate normalization further into the future.
Along with employment, markets may remain focused on the nature of inflation increases.
While a growing number of Fed members worry that inflation could become entrenched, Powell and other like-minded policymakers considers the recent acceleration in price growth off of 2020 pandemic lows to be transitory.
Following Powell’s comments, U.S. Treasury 10-year yields dropped to 1.317% from 1.359% highs prior to his speech.
Eurodollar futures rose from -2bps in the blue and green contracts prior to Powell’s speech to +4bps afterward as the market reduced rate-hike expectations.
EUR/USD rallied off early NorAm lows by 1.1735 to end the session +0.37%. The gains halted near the 23.6% Fib of 1.2266-1.1664, the Aug.
13 high and 50-DMA.
USD/JPY fell from pre-Jackson Hole highs by 110.27, ending NorAm -0.23% at 109.83.
Resistance at the 55-DMA, though bruised, held after several breaches this week.
Sterling fared the best of the three major currencies, with GBP/USD ending up 0.49% to 1.3768, a touch below its 1.3781 high.
Sterling bulls seized on Powell's dovish tone as focus turns to the potential for the BoE to lift rates in H1 2022.
AUD/USD rallied with risk, with stops run above Aug.
25-26 highs by 0.7280, breaking above the 21-DMA by 0.7305, but it found offers ahead of the 30-DMA by 0.7323.
Gold rallied and silver followed other industrial commodities higher.
Oil gained near 2% , with copper rising 1.5%.
Bitcoin gained for the second straight session off 200-DMA support by $46k, though offers remain near $50k, ahead of Aug.
23’s trend high by $50.6k.
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