As market participants continue to digest Trump’s message which was fairly contradictory, market focus gradually shifts to the upcoming Powell’s testimony in Congress two weeks after the Federal Reserve cut its interest rates for a third time since summer. Investors expect the Fed’s Governor to share his outlook for the US economy, which could affect short-term dynamics in USD pairs.
During the last meeting, Jerome Powell signaled a pause in cutting rates after three acts of policy easing since the start of the year. Such decision shows that the regulator is getting even more data-dependent in its decision making. In turn, it means that investors will pay closer attention to the incoming economic data out of the United States.
Today, markets could receive additional details on the Fed’s current assessment of the health of the country’s economy. Should Powell deliver more hawkish remarks, the US currency could gain across the board, as positive statement will be regarded by investors as a confirmation of a pause in policy easing for now.
A more neutral tone by the Fed’s head will hardly bring any significant changes in the market sentiment, with dollar could stay nearly unfazed should Powell’s speech fail to give traders anything new in comparison with the central bank’s statement during the last meeting in late-October.
Also, traders will focus on the US CPI data for October, with consensus on the index ex-food and energy comes at 1.7%. However, as the Fed’s preferred gauge of inflation is the PCE deflator, today’s numbers could fail to have a substantial impact on the markets. On the other hand, stronger-than-expected results could revive demand for the greenback in the short term.
But the report will likely disappoint the USD bulls as the index could have been negatively impacted by seasonal factors and gas price changes. Anyway, the data will fail to change investors’ view on the outlook for the Fed’s monetary policy at this stage.
In general, global markets could see a short-lived reaction to both events as investors are still focused on the US-China trade developments, especially amid the uncertainty after Donald Trump’s remarks during the previous session.