Fed Testimony Failed To Deliver Rate Hike Signals; Dollar Fell

The dollar index fell lower on Tuesday, recording losses of 0.36% to 95.56, its lowest level since November 19 last year. The sell-off pressure came after the Fed’s testimony, which failed to meet market’s expectation of a rate hike signal.       

Dollar had been consolidating at its higher levels, gaining support from ongoing optimism for a potential rate hike as early as March amid surging US inflationary levels. Recent comments from Fed members showed their willingness to increase interest rate sooner to counter rising goods prices. However, Fed Chairman, Jerome Powell did not provide any clear signals as to when the Fed will start raising rates.   

Yesterday’s testimony also failed to conclude the decision on reducing the Fed’s nearly $9 trillion balance sheet, with Powell judging that the decision could take up to four meetings before a final conclusion. Comments had since dampened optimism for an earlier rate hike albeit market’s expectation for at least a three rate hike this year.

On a side note, Powell addressed the recent impact from the Covid-19 Omicron variant to be short-lived, while commenting on the positive economic development for the quarters ahead. The statement from Powell had boosted market risk appetite while dragging the appeal of the safe-haven dollar as investors shift into riskier currencies and energies market.   

Crude oil rose nearly 4% back above its $80 levels, while the pound (GBP) surged 0.41% against the dollar to 1.3630, its highest level in more than two months. The riskier Loonie (CAD), backed by crude oil, gained 0.81% to 1.2570.            

Investors will now shift their focus over to upcoming US inflation data, where the year-on-year Consumer Price Index (CPI) is expected to rise to a three decade high of 7%.  

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From the technical front, dollar index in its D1 timeframe successfully broke below the bottom-level of its sideway consolidation and support level near 95.70. MACD, showing a bias bearish signal, suggests the dollar to extend lower towards its longer-term upward trendline and support level near 94.90. A breakout further below would suggests a bearish reversal for the dollar in the medium-term.