USD

The dollar advanced against all major rivals yesterday ahead of Federal Reserve Chairman Jerome Powell’s address. It went on to lose a little ground overnight, but remains near multi-month highs.

Much like last week’s announcement, in which the Fed signaled a rate increase could happen sooner than expected, Powell acknowledged that some inflation pressures are stronger and more persistent than first anticipated. He added, however, they were still not on par with some of the worst episodes the US had seen and the Fed would use all tools available to prevent this from happening.

He noted that much of the recent inflation surge was due to the economic reopening. Powell cited airline tickets, hotel prices and lumber along with generally surging consumer demand pumping up the economy. Those factors, he said, should “resolve themselves” in the coming months, sticking with the narrative that current price pressures are transitory and will eventually subside.

He added: “We will wait for evidence of actual inflation or other imbalances”. Actual inflation likely defined as a sustained month on month overshoot of the 2% target.

He also reiterated that full employment was still a key goal for the Fed. Investors relaxed as this hinted fear of inflation alone would not be enough to prompt rate rises despite last week’s dot plot.

Several other Fed speakers were due to appear last night and their speeches gave mixed signals. New York Fed President John Williams held a dovish tone. His main concern was employment and the lack of participation despite record vacancy rates.

In contrast, St. Louis Fed President James Bullard emphasized that he wanted to taper as early as possible. This ultimately downplays last week’s dot plot as it highlights the difference in opinion among the Federal Open Market Committee.

Key announcements

07:30 -EUR- Markit Manufacturing PMI(Jun) PREL

07:30 -EUR- Markit Services PMI(Jun) PREL

07:30 -EUR- Markit PMI Composite(Jun) PREL

08:00 -EUR- Markit PMI Composite(Jun) PREL

08:30 -GBP- Markit Services PMI(Jun) PREL

18:00 -EUR- ECB’s President Lagarde speech