Powell Optimistic Outlook on US Economy Benefits Dollar
On Wednesday, the dollar increased and surged to a high for six months against yen. This came after when Federal Reserve Chairman Jerome Powell expressed his optimistic analysis on US economy. Moreover, he stated views on the Fed’s plans to make gradually hike interest rates.
On Tuesday, Powell said that he saw the potential of the United States of making more steady growth for years. This is along with broadly moderating the trade war’s risks.
Meanwhile, the greenback increased to 0.05% at 112.955 yen after its 113.08 high. The euro made a 0.05 % decrease to $1.1653 after a 0.4% drop overnight.
“The dollar stands to gain further, particularly against the yen, with risk aversion in the equity markets petering out. And while long-term Treasury yields are not rising prominently, this is a reflection of investor demand for U.S. assets that generates a degree of dollar-buying,” Senior FX strategist Junichi Ishikawa of Tokyo-based IG Securities said.
As of this week, the 10-year Treasury yield remained stable, however; it has been making a steady drop. This was after a high above 3% set in May for seven years.
The two-year Treasury yield, meanwhile, surged to a decade high. The two-year Treasury yield is most sensitive when it comes to the views of the market on Fed policy’s changes.
This resulted in the US yield curve to become an 11-year flattest and near to retreating. In fact, this phenomenon happens when the two-year yield becomes higher compared to the 10-year Treasury yield.
Sometimes, an inverted yield curve serves as a fading confidence sign on economy and recession.
“The correlation between the yield curve and the dollar has been relatively unstable. Taking this into account, currencies are unlikely to show a strong reaction if the curve does invert,” Tohru Sasaki, head of market research at JP Morgan said.
Dollar increases day’s high on Powell’s Positive Outlook
On Tuesday, the dollar increased to the day’s high after Federal Reserve Chairman Jerome Powell’s optimism about US economy. This is while maintaining a steady track to make the gradual hike on interest rates.
The index of the US dollar went up to 0.31% to 94.56 recovering from an earlier drop of 94.12.
Moreover, Powell warned that the impact of the trade tensions on economic outlook is difficult to predict. He added there would an uneven balance on the risks of a weaker or stronger economy.
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