Economy

EURUSD Turns Higher But The US Dollar Remains Bullish

EURUSD Turns Higher But The US Dollar Remains Bullish”

U.S. Federal Reserve Chair Jerome Powell injected investors with a strong dose of optimism on Wednesday, saying that the central bank's policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy U.S. economy, comments that many investors read as signaling the Fed's three-year tightening cycle is drawing to a close.

U.S. Federal Reserve (Fed) said on Thursday that nearly all Fed policymakers expected another interest rate hike "likely to be warranted fairly soon". His remark then had unsettled investors who feared it signaled that the Fed would continue raising rates well into the coming months.

The Dow was up 617.7 points, or 2.5 percent, to 25,366.43 at the end of trading Wednesday, marking its largest single-day gain since March 26.

"He said the magic words", Gregori Volokhine of Meeschaert Financial Services told AFP. But the likely pace of rate increases next year remains a subject of speculation.

Mr. Powell repeated a relatively upbeat view of the economic outlook, including low unemployment and stable inflation.

The Fed said that nearly all of its policymakers agreed that "a gradual approach to policy normalization remained appropriate" in its newly released minutes of the Federal Open Market Committee (FOMC) meeting which was held from November 7 to November 8. Not the outlook for the USA economy which, while expected to see a slower rate of growth in 2019, is still growing at a sufficient pace to justify further increases in the cost of borrowing.

The Fed chairman said the central bank is monitoring potential vulnerabilities in the banking system to ensure its continued stability.

While the Fed is expected to raise rates by a quarter point at its meeting on Dec 19, it has forecast to have three more hikes next year.

He also told The Washington Post that "the Fed is a much bigger problem than China".

"As always, our decisions on monetary policy will be created to keep the economy on track", he said.

But in response to questions he likened the policy process to walking through a dark room, forcing officials to slow down.

"Many baby boomers like me are, however, reaching an age where a good report is, 'Well, there are a number of things we should keep an eye on, but all things considered you are in good health, '" said Powell.

Asked about GM's layoffs and recent declines on Wall Street, Trump laid the blame on Powell. But many economists warn that the attacks actually could pressure the central bank to raise rates to demonstrate its independence from political influence.

The speech was "a reassuring message from a market perspective because it removes concerns of a Fed dead set on tightening up to a point where rates would intentionally slow down the economy", he added.

And he said the financial system was now "substantially more resilient" than it was before the 2008 financial crisis.

Still, he judged the area posed little systemic risk, labeling broader, overall risks to financial stability as "moderate".



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