USD edges lower on Powell comments - Scotiabank

The US Dollar (USD) is tracking lower overall for a second day, reflecting dovish comments from Fed Chair Powell yesterday and some stabilization in risk appetite after the recent wobble in sentiment. Chair Powell noted that the US jobs market showed 'pretty significant downside risks', a view later echoed by Boston Fed President Collins, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD backtracks modestly on Powell comments

"Powell's remarks appeared to endorse easier policy if the labour market deteriorates but not at a pace that would risk leaving the 'inflation job unfinished', suggesting comfort with the idea of modest easing steps in line with market expectations. Swaps reflect 25bps of easing priced in for the October 29th FOMC and similar for the December 10th decision. The prospect of easier Fed policy through 2026 constitutes a clear constraint on the USD outlook in broad terms, as does the rising level of Federal government debt. Many large economies are dealing with elevated levels of government debt but few have as weak a profile for the long-term debt trend as the US. Powell's apparently dovishleaning comments have also had the effect of calming equity market sentiment, with the S&P 500 steadying around Friday's low (which equated to a test of the 50-day MA)."

"Meanwhile, President Trump gave an unusual thumbs up for the USD in response to questions from reporters yesterday, saying that he was 'very strong on the dollar'. He commented that the BRICS was an attack on the USD but offered no other context. Other members of the US administration have been less enthusiastic about USD strength in the past, however. Across the major currencies, the NOK is leading gains as oil prices steady while the AUD has picked up a little ground after RBA Assistant Governor Hunter said Q3 inflation was likely to be stronger than expected. Gold is extending its ascent and reached a peak of $4218 earlier."

"Generally, stronger gold prices should add to pressure on the USD. The NY Fed releases its October Empire Survey at 8.30ET and there is a lot more central bank speak over the session, with the Fed's Miran (two spots on the calendar), Waller and Schmid, the ECB's Rehn, Villeroy and Guindos, the BoE's Breeden, the Riksbank's Thedeen and the RBA's Bullock and Kent all speaking. Japan releases core machinery orders (proxy for capex) this evening. Short-term patterns in the DXY suggest a minor top may be in place on the charts around 99.50. Losses may extend below 98.80 to fill a small gap on the charts between 97.80/00."