Dollar dives on Dovish Powell, Gold jumps

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Buying sentiment towards the Dollar imploded on Wednesday evening after dovish remarks from Federal Reserve Chairman Jerome Powell prompted investors to re-evaluate rate hike expectations.

Powell’s comments that interest rates are “just below” the neutral range will most likely fuel speculation over the Fed taking a pause in interest rate hikes next year. With investors scaling back on rate hike expectations beyond December, the Dollar may witness further losses in the near term.  In regards to the technical picture, the Dollar Index could challenge 96.50 if prices are unable to break back above 97.00.

Sterling higher despite BoE Brexit warning

The Pound is trading higher this morning despite the Bank of England’s (BoE) financial stability report warning of a disorderly Brexit unleashing a savage recession.

An unfavorable scenario where the UK crashes out of the European Union with no deal in place could result in GDP tumbling 8% within a year, while the Sterling is projected to weaken 25% to below parity against the Dollar. With inflation expected to jump 6.5% amid a severely depressed Pound and unemployment seen rising to 7.5%, the outlook in an event of a no-deal outcome looks quite gloomy. On the bright side, the BoE stated that a close economic partnership with the EU could boost GDP growth by 1.75% over the next five years. Although Dollar weakness heavily supported the Pound, it seems investors are focusing on positive aspects of the BoE’s financial stability report to push the GBPUSD higher.

All in all, the report is likely to provide Theresa May with some ammunition when she tries to sell her Brexit deal to parliament.

All eyes remain on the G20 summit

The main event risk and potential market shaker remain the pending G20 meeting. With ongoing trade tensions weighing heavily on market sentiment, investors will be paying close attention to trade talks between the United States and China later this week. Market sentiment could receive a solid boost if the talks prove successful and some sort of middle ground on trade is reached. However, a scenario where talks descend into disagreements on trade may fuel fears over a trade war between the United States and China becoming a reality.

Commodity spotlight – Gold

Gold prices jumped as much as one percent to hit $1226.50 as the Dollar stumbled following Jerome Powell’s dovish remarks. The price action witnessed continues to highlight how Gold remains heavily influenced by the Dollar’s performance and rate hike expectations. With the Dollar potentially weakening further in the near term, the yellow metal could attempt to break above the $1228.00 resistance level.

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