FX Daily: “Powell rally” in DXY might be fleeting

EUR near support around 1.12
Philip Wee23 Nov 2021
    Photo credit: Unsplash Photo

    DXY appreciated 0.5% to 96.5 on US President Joe Biden’s long-awaited decision to renominate Jerome Powell as Fed Chair. Lael Brainard, who was considered more dovish, was appointed as Fed Vice Chair instead. Overall, the announcements sent US 10-year treasury yields up 7.7 bps to 1.624% and the S&P 500 and Nasdaq Composite down by 0.3% and 1.3% respectively for one simple reason. Last week ended with Fed Vice Chair Richard Clarida expecting more discussions on whether step up the pace of tapering asset purchases at the FOMC meeting on 15 December. 

    However, Brainard will replace Clarida when his term ends on 31 January 2022. Powell’s comments that the Fed has met the criteria for the taper and not rate hike are likely to show up in tomorrow’s FOMC minutes. The Fed’s favorite inflation gauge might disappoint tomorrow. Consensus expects the PCE deflator to rise to 5.1% YoY in October from 4.4% in September, like CPI inflation did to 6.2% from 5.4%. However, the PCE deflator has not risen as quickly as CPI since May. Today, President Biden will also follow up with discussions on the US economy and his priority to contain inflation. A decision to release oil from the Strategic Petroleum Reserves is possible before Biden heads to Nantucket, Massachusetts, for the Thanksgiving weekend. 

    Hence, we remain wary of profit-taking ahead of the long weekend, especially after a move of 3 big figures (i.e., from 93.5 to 96.5) in the DXY within a short period of time. While the resurgence of Covid infections in Europe lifted the USD via a weaker EUR, it also dampened risk appetite in stock markets. After having depreciated almost 4% to 1.1237 in the past three weeks, EUR will be running up against an important support level around 1.1170.


    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]

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