After the Federal Reserve refused to the idea of President Donald Trump to cut interest rates, the dollar holds its gains in Europe on Thursday. During the regular press conference of Fed Chair Jerome Powell, he said that Fed officials see the movement in either direction is not a strong case. In other words, the first quarter’s weakness in inflation and private demand will last only for a short while.
Powell’s remark sparked a sell-off in the U.S. Treasuries and stocks. And it shifted more than one-third of dollar’s slide for the past three days. His comment pushed back against President Trump’s public lobbying for lower rates.
The greenback’s standing against a basket of six major currencies is measured through the dollar index. At 03:00 AM ET (0700 GMT), the dollar index was at 97.428. From before Powell’s comments, it rose up to nearly 0.5%.
The increased data hinting bits of weakness in the economy wrapped the rebound of the dollar. On Wednesday, the manufacturing index for April of the Institute for Supply Management dropped more than expected. Aside from that, the Chicago Purchasing Managers Index collapsed on Tuesday. On the other hand, the consumer confidence index of the Conference Board rose above expectations.
According to Sophia Ferguson, senior portfolio manager at State Street Global Advisors, “There remains a risk that a cut over the medium term may be necessary to support the economy.” And she added, “a significant downward revision to the economic forecasts is necessary to justify this course of travel.” Moreover, a 25 basis-point cut is to expect around this year by the market.
Bank of England
Following the Fed today is the Monetary Policy Committee meeting of the Bank of England. The BoE doesn’t have any plans on changing its current interest rates. But analysts debate that it can shift into preparing markets for an increase of interest rate later this year. Particularly, if Brexit shrinks uncertainties.