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U.S. Dollar (DXY) Rebounds As Powell Stays Hawkish

By:
Vladimir Zernov
Published: Sep 8, 2022, 14:42 UTC

EUR/USD tested the 0.9950 level after the ECB decision. GBP/USD slipped back below the 1.1500 level.

U.S. Dollar

In this article:

Key Insights

  • Fed Chair Jerome Powell remains focused on inflation, which is bullish for the U.S. dollar. 
  • EUR/USD is losing ground despite an aggressive rate hike from the ECB. 
  • GBP/USD declines as traders remain focused on the energy crisis. 

U.S. Dollar Gains Ground After Yesterday’s Pullback

U.S. Dollar Index is trading near the 110 level as the American currency rebounds after yesterday’s pullback.

Today, Fed Chair Powell said that the Fed remained committed to controlling inflation but hoped to avoid high social costs. The hawkish commentary provided additional support to the American currency.

The U.S. has recently released Initial Jobless Claims report, which indicated that 222,000 Americans filed for unemployment benefits in a week. Analysts expected Initial Jobless Claims of 240,000.

The situation in the job market remains healthy, so there are no major obstacles for an aggressive rate hike from the Fed, which is bullish for the U.S. dollar.

EUR/USD Retreats After ECB Interest Rate Decision

EUR/USD declined below 1.0000 and made an attempt to settle below 0.9950 after the ECB raised the interest rate from 0.5% to 1.25%.

The ECB believes that inflation will average 8.1% in 2022 and 5.5% in 2023, but it will continue to reinvest the principal payments from maturing securities purchased under the asset purchase programs. Obviously, the ECB is afraid that additional tightening will wreak havoc in bond markets.

Bond markets remain nervous, and the yield of Germany’s 10-year government bonds is at multi-month highs. The continuation of the current trend may raise worries about a potential debt crisis in the Eurozone, as the stability of Germany’s bonds is the key pillar behind the whole financial structure of the EU.

GBP/USD Declined Below 1.15000

GBP/USD has also found itself under pressure and moved below the 1.1500 level. The yield of 10-year UK government bonds is testing yearly highs as Britain has decided to cap consumer energy bills for two years.

The support package could cost up to 150 billion pounds, which is bearish for Britain’s government bonds. The new government spending may put additional pressure on GBP/USD.

Commodity-Related Currencies Are Moving Lower

AUD/USD lost momentum and moved towards 0.6730 as commodity-related currencies remained under pressure.

AUD/USD

Currently, AUD/USD is trying to settle below the support level at 0.6715. In case this attempt is successful, AUD/USD will head towards the next support level at 0.6700. A move below this level will open the way to the test of the support at 0.6685.

On the upside, the nearest material resistance level for AUD/USD is located at 0.6760. In case AUD/USD manages to settle above this level, it will head towards the next resistance at 0.6780.

NZD/USD has also found itself under pressure and moved below 0.6050 level. USD/CAD found support near 1.3100 and made several attempts to settle above 1.3100.

From a big picture point of view, recession worries continue to put pressure on commodity-related currencies. Most likely, they will need significant upside catalysts to break the current trend.

USD/JPY Trades Near The 144 Level

USD/JPY continues its attempts to settle above the 144 level. We have seen some profit-taking after USD/JPY touched the 145 level, but the Japanese yen remains under strong pressure.

There are no positive catalysts for the yen, and it remains to be seen whether USD/JPY will be able to break the current trend in the upcoming trading sessions.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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