Dollar Weakens as Powell’s Testimony Fails to Impress
The dollar weakened on Thursday after Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress failed to provide any new insights into the central bank’s monetary policy plans.
In his testimony, Powell reiterated that the Fed is committed to bringing inflation back to its 2% target. However, he also acknowledged that the pace of economic growth is slowing and that there are some risks to the outlook.
“The path to our goals is highly uncertain,” Powell said. “We will need to be nimble in responding to incoming data and the evolving outlook.”
Investors were expecting Powell to be more hawkish in his testimony, given the recent surge in inflation. However, his comments were seen as being relatively dovish, which weighed on the dollar.
“The market was hoping for a more hawkish Powell, but he didn’t deliver,” said Edward Moya, senior market analyst at Oanda. “This is a disappointment for the dollar bulls.”
The dollar index, which measures the greenback against a basket of six major currencies, fell 0.4% on Thursday. The euro rose 0.6% against the dollar, while the Japanese yen strengthened 0.3%.
Moya said that the dollar is likely to remain under pressure in the near term, as investors continue to price in the risk of slower economic growth.
“The dollar is going to be under pressure as long as the market is concerned about the global economy,” he said.
Other factors that could weigh on the dollar include:
- The ongoing war in Ukraine
- Rising energy prices
- The potential for a recession in the United States
If any of these factors materialize, it could lead to further weakness in the dollar.