Dollar extends decline after dovish Powell as US CPI hits 40-year peak

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Dollar extends decline after dovish Powell as US CPI hits 40-year peak

US Federal Reserve Chair Jerome Powell says in a congressional hearing on Tuesday that US economy should withstand the current tidal wave of Omicron surge which would more likely to have a ‘short-lived’ impact and the Central Bank has been prepared to begin its planned tightening of monetary policy, as American currency extended decline on Wednesday amid growing bet on riksier assets with US CPI (Consumer Price Index) surging 7.0 per cent over past twelve months through December.

On top of that, both Democrats and Republicans in Senate Banking Committee have openly corroborated Powell’s testimony that mostly addressed how the Federal Reserve had been concocting against a multi-decade high inflation, while Powell also had explained why the Central Bank had botched to diagnose a robust build-up in price pressures alongside impacts of a stiffer monetary policy on job growth.

Meanwhile, again submissively undermining the potential impacts of a higher inflation, Fed’s Powell had said that a shift towards higher interest rates alongside retreating a higher asset holding policy would be necessary to maintain a sustenance of current economic expansion adding “Inflation is running very far above target.

The economy no longer needs or wants the very accommodative policies we have had in place”. Nonetheless, analysts were quoted saying that a continuation of present trend in inflation-surge might force the US Fed to hike its benchmark borrowing costs more than a planned 75 bps this year, which eventually would lead to a recession in 2023.

Dollar falls after Powell’s congressional hearing, CPI data

Besides, as market participants remained utterly uncertain following Powell’s testimony that did not precisely underline how the US Fed had been planning to reduce the Central Bank’s nearly $9 trillion worth of assets amid growing debates on re-nomination of Powell contemplating a cascade of contentious issues ranging from a stock trading scandal to resignation of top officials that had tarnished the Fed’s image, US Dollar sharply turned downwards following Powell’s congressional hearing.

As of late-afternoon Tuesday's closing, the US Dollar Index (DXY) measured against a basket of six major currencies fell 0.30 per cent to 95.57 after trading above a 96-mark over most of the session, while euro was trading 0.36 per cent higher to $1.1366 and British Pound added 0.38 per cent to $1.3627 against the greenback.Canadian Dollar surged 0.76 per cent to $1.2581 against its American peer with crude oil rallying nearly 3 per cent, while Aussies and Kiwis added 0.52 per cent and 0.30 per cent respectively to $0.7208 and $0.6782.

Safe-haven asset such as Swiss Franc gained 0.4 per cent to $0.9235. Nevertheless, while this report was being prepared, Wedneday's midday European trading hours, US Dollar Index (DXY) fell 0.25 per cent further to 95.27, while the bloc's common currency euro is trading 0.33 per cent higher to $1.1405 against the greenback and British Pound gained 0.30 per cent to $1.3675.

Safe-haven Japanese Yen added 0.10 per cent to 115.17 yen per dollar, while Swiss Franc soars 0.40 per cent to $0.9195. Aussies and Kiwis rose 0.46 per cent and 0.29 per cent respectively to $0.7243 and $0.6804 against their American counterpart, as Canadian Dollar gained 0.42 per cent to $1.2521 with oil prices surging more than 1.0 per cent.