USD Still Lifeless

The US Dollar remains largely subdued today despite a broadly hawkish set of comments from Fed chairman Powell yesterday. Powell was testifying at the senate confirmation hearing for his Fed chairman re-nomination yesterday and provided plenty of insight into the Fed’s outlook and policy plans for the year ahead. On the back of a mixed set of jobs numbers last week, the Dollar was trading in a lifeless manner heading into the comments and seems to be in no better state now as traders instead focus on today’s CPI release. However, there were many important takeaways from Powell’s testimony. Let’s quickly recap.

Powell Warns Over Threat from Inflation

The main crux of Powell’s comments yesterday centred on inflation. The Fed chairman warned that inflation posed a “severe threat” to the economy and the to the labour market. With that in mind, Powell noted that the era of pandemic stimulus in the US was now finished, explaining that the economy neither “needs or wants” these “highly accommodative” policies to continue.

Long Expansion Needed

Commenting on the jobs market specifically, Powell noted that “High inflation is a severe threat to achieving maximum employment and to achieve the long expansion that could give us that.” The Fed chair went on to say that “To get the very strong labour market we want with high participation; it is going to take a long expansion. To get a long expansion, we are going to need price stability.”

Market Focused on March Rate Hike

Looking ahead, Powell advised senators that the Fed is prepared to take more aggressive policy action than currently projected, if necessary, in order to achieve this price stability. While no specific mention was made regarding timing the market is widely expecting the Fed to commence lift-off in March, with Powell’s comments yesterday giving no reason to shift this view.

Faster "Run Off" Process

Beyond rate hikes alone, Powell commented on the Fed’s plans with regards to managing its balance sheet. This has become a key area of focus for markets and on this note, Powell was hawkish once again saying that the “run off” process would likely happen “sooner and faster” than it did following the previous easing cycle.

CPI Up Next

On the whole, Powell’s comments were decidedly hawkish, so the downturn in USD is a little disappointing. Most likely, the move is simply a function of how built up the USD position is currently. Powell’s comments were hawkish, yes, but given that he stopped short of signalling a lift of date (didn’t confirm March) there technically wasn’t any new information here. With that in mind, the market remains focus on today’s CPI release which has the potential to be the main catalyst this week.

Technical Views


The correction in USDJPY from the recent 116.07 highs has seen the market trading back into the support region around 115.45. While this area holds, the focus is on further upside and a continuation towards the 117.02 level. However, with indicators turning lower here, risks of a deeper correction are growing. Should price break below the current level, 114.70 is the next support to note, a break of which paves the way for a run down towards the 112.72 level.