Bullard and Powell boost USD

Powell’s speech scheduled for 6:00 pm BST was the most awaited event of the day. However, before we move to what Powell said, let’s mentioned remarks of St. Louis Fed President, James Bullard. Bullard appeared on Bloomberg TV at 5:30 pm BST and his speech trigger a solid downward move on the EURUSD market. Did Bullard said something that market did not expect? Not really, but the key point is that HE said it. Bullard said that leaving rates unchanged in June increases probability of a rate cut in July and that.... a 50 basis point cut in July would be an overkill. Bullard is the most dovish Fed member at the moment and the only one that called for a rate cut during June’s meeting. Markets gave around 40% chance for a 50 bp rate cut in July prior to his speech but the fact that the Fed’s biggest dove doesn’t see it appropriate saw this probability drop to 25%.

Let’s move to Powell’s speech now. Fed President said that the outlook of the FOMC is still favourable and that he expects inflation to return to 2%. He also said that the Fed is weighing whether uncertainties require easing monetary policy. The message does not differ much from the latest FOMC statement and signals that the rate cut may not be a done deal. However, a point to note is that Powell addressed recent remarks by Trump on the US central bank. Powell said that “damage arises when policy bends to political interests” and that “central banks in major democracies enjoy independence”. Nevertheless, his speech did not saw such a sharp market reaction as the one from Bullard. EURUSD moved slightly lower and printed new daily low at 1.1351.

EURUSD printed new daily low at 1.1351 following Powell's speech. However, scale of the move was nowhere near the one triggered by Bullard's remarks. Source: xStation5