- The dollar cuts previous losses as optimism on the high fire in the Middle East is faded.
- The president of the FED, Powell, maintained a cautious posture towards the cuts of fees in his testimony before the Congress.
- A pessimistic consumer confidence survey undermined the confidence in Powell’s hard line position.
The US dollar is quoted with slight profits on Wednesday, cutting losses after a drop of almost 1.30% in the previous two days. The markets have become more cautious as the euphoria due to the high fire in the Middle East decreases, although the hopes of investors that the Fed cuts rates in the coming months are limiting rising attempts.
The high fire between Israel and Iran remains for the second day, which maintains a moderate appetite by risk, but a US intelligence report that indicates that the attacks had only delayed Iran’s nuclear program for a few months generates doubts about a lasting peace.
Powell de la Fed fails to stop the expectations for rate cut
On Tuesday, the president of the FED, Jerome Powell, resisted the calls of President Trump for a feature cut and divergence within the monetary policy committee of the Central Bank, and confirmed that the Central Bank does not rush to cut in tasks.
Powell reiterated that the bank is well positioned to react to a very probable increase in prices when the impact of Trump tariffs filter through the US economy, affecting economic activity.
However, macroeconomic data revealed that the economy is already losing impulse. The conference of the Conference Board deteriorated in the face of expectations in June, with cautious consumers on the labor market.
These figures arrive after a series of pessimistic macroeconomic publications in the last two weeks, which are feeding the market expectations that the bank will cut rates twice this year. Future markets are increasingly valuing a 25 basic points cut in September and another in December, and this is limiting the rising attempts of the US dollar.
Fed Faqs
The monetary policy of the United States is directed by the Federal Reserve (FED). The Fed has two mandates: to achieve prices stability and promote full employment. Its main tool to achieve these objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the objective of 2% set by the Federal Reserve, it rises interest rates, increasing the costs of loans throughout the economy. This translates into a strengthening of the US dollar (USD), since it makes the United States a more attractive place for international investors to place their money. When inflation falls below 2% or the unemployment rate is too high, the Federal Reserve can lower interest rates to foster indebtedness, which weighs on the green ticket.
The Federal Reserve (FED) celebrates eight meetings per year, in which the Federal Open Market Committee (FOMC) evaluates the economic situation and makes monetary policy decisions. The FOMC is made up of twelve officials of the Federal Reserve: the seven members of the Council of Governors, the president of the Bank of the Federal Reserve of New York and four of the eleven presidents of the regional banks of the Reserve, who exercise their positions for a year in a rotary form.
In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non -standard policy measure used during crises or when inflation is extremely low. It was the weapon chosen by the Fed during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy high quality bonds of financial institutions. The one usually weakens the US dollar.
The quantitative hardening (QT) is the inverse process to the QE, for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the bonds that it has in portfolio that they expire, to buy new bonds. It is usually positive for the value of the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
