Fed chief Powell's comments on trade woes hammer dollar
10 July 2019
The US dollar fell against major currencies, including the euro and the yen, in early trading today after Federal Reserve Chairman Jerome Powell said trade uncertainties and concerns about the global outlook continued to exert pressure on the US economy.
In a prepared statement during a testimony a congressional committee today, Powel struck a downbeat note, saying trade uncertainties and concerns about the global outlook continued to exert pressure on the U.S. economy.
The dollar fell 0.2 per cent against the Japanese yen to 108.66 in early morning trading, while the euro rose 0.3 per cent against the dollar to $1.1244.
Concerns about trade policy and a weak global economy “continue to weigh on the US economic outlook” and the Federal Reserve stands ready to “act as appropriate” to sustain a decade-long expansion, Fed chairman Jerome Powell said in remarks that could bolster expectations of an interest rate cut later this month.
The Fed hiked its benchmark overnight interest rate and has been keeping within a range of between 2.25 per cent and 2.50 per cent since December.
The greenback hit session lows versus the euro and yen after Powell’s comments, which reinforced expectations the Fed will cut interest rates for the first time in a decade at its next monetary policy meeting later this month.
He also contrasted the Fed’s “baseline outlook” of continued US growth against a considerable set of risks - including persistently weak inflation, slower growth in other major economies, and a downturn in business investment driven by uncertainty over the ongoing trade war with China and other countries.
Fed officials at their June policy meeting signaled those concerns might warrant lower rates, and “since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. outlook,” Powell said.
“Apparent progress on trade turned to greater uncertainty, and our contacts in business and agriculture reported heightened concerns over trade developments,” Powell said, noting that business investment, an important component of economic growth, “seems to have slowed notably” in recent months.
Overall growth has also “moderated,” the Fed chief said, while “there is a risk that weak inflation will be even more persistent than we currently anticipate,” and not prove as transitory as Fed officials have often insisted.
Powell will present his remarks and take questions from members of the U.S. House of Representatives Financial Services Committee beginning at 10 a.m. EDT (1400 GMT), and will testify again on Thursday before the Senate Banking Committee.
Powel’s comments come at a sensitive time for both the Fed and the US administration, with President Donald Trump proposing that the U must also do some currency interventions to bolster the economy.