USD Slides As Powell Greenlights Smaller December Hike

The US Dollar has come under heavy selling pressure today following a dovish set of comments from Fed’s Powell yesterday. Speaking at the Brookings Institute, Powell told audience members that the Fed agreed that a smaller pace of rate hikes would be appropriate from as early as the next meeting, possibly. Pricing for the December FOMC shifted firmly back in favour of a smaller .5% hike following his comments, now sitting at around 80%.

Powell Fends Off Criticism

Powell pushed back against criticism that the Fed was so intent on taming inflation that it was damaging the economy with a view to repairing the situation after. The Fed chair said that the bank had taken careful steps to avoid overtightening, including a shift now to a slower pace of hiking.

Labour Data up Next

However, looking ahead, Powell warned that some of the shifts which have occurred in recent years, such as tightness in the labour market, would remain for some time. Slowing jobs growth has been crucial to the Fed’s push to get inflation back to 2%. With that in mind, traders now look ahead to Friday’s NFP on the back of a much-weaker-than expected ADP reading yesterday which suggests that tightness has yet to dissipate. On the back of Powell’s comments and the Fed’s desire to slow tightening, the better opportunities sin USD lie to the downside for now.

Technical Views

USDJPY

The reversal lower in USDJPY continues this week with the market breaking down below the 139.33 level. With momentum studies bearish and the retail market heavily long, there is plenty of scope for the current down move to continue putting 131.36 in sight as the next target for bears.