Comments from Fed Chief Jerome Powell boosted expectations for an interest rate cut from the U.S. central bank this month. Powell pointed to “broad” global weakness.
Jerome Powel said that concerns about trade policy and a weak global economy “continue to weigh on the U.S. economic outlook”.
The Fed Chief set the stage for the first U.S. interest rate cut in a decade later this month. The Fed, which hiked rates four times last year, has kept its current benchmark overnight interest rate in a range of between 2.25% and 2.50% since December.
The Federal Reserve Chairman said the Fed was ready to “act as appropriate” to sustain a decade-long U.S. economic expansion. Powell pointed to economic risks including persistently weak inflation, slowing global growth and a downturn in business investment.
Minutes released from the Fed’s June meeting struck a similar tone as Powell’s testimony. Several of the central bank’s policymakers said interest rates should come down to soften the blow of a U.S.-China trade war and to firm up inflation.
Following Powell’s remarks, the dollar fell against the euro and the yen.
The dollar was stuck at a five-day low, extending losses. Investors were wary of selling dollars aggressively until a policy review later this month. With U.S. inflation data due shortly, traders are prepared to sell dollars if the data undershoot forecasts. However, analysts say the bigger risk may be that inflation beats expectations and causes to dollar to rebound.
Against a basket of other currencies, the dollar fell 0.2% to 96.83, its lowest since July 5. Greenback was close the three-month low of 95.84 from late June.
U.S. stocks were trading higher, with the benchmark S&P 500 index briefly crossing the 3,000-point mark for the first time.
START TRADINGForex – Fed chief boosted rate cut prospects
Uncertainty prompted some investors to unwind short positions against some heavily shorted currencies.
The Australian dollar rose 0.2% in early London trading, while the yen was last 0.36% stronger against the dollar at 108.45.
Sterling edged higher on Thursday thanks to broad-based dollar weakness, snapping a recent losing streak. Investors remained wary about the British currency’s outlook on growing economic headwinds and political fears. The British currency plumbed to a two-year low this week at $1.2439 before recouping some losses. However, it remains down for the week, amid Britain’s economic gloom and a fast-approaching Brexit deadline.
On Thursday, it gained a quarter of a percent to $1.2535. Versus the euro, the pound edged higher to 89.90 pence. Yet, it was still on track for a record tenth consecutive week of losses.
The euro, which dipped below $1.12 earlier this week, extended its recovery. The common currency was trading 0.2% up on day at $1.1271 even as expectations grew that the ECB would loosen policy.
Oil prices hit a six-week high on Thursday as oil rigs in the Gulf of Mexico were evacuated ahead of a storm. Further, an incident with a British tanker in the Middle East highlighted tensions in the region. Oil prices were also supported by a fall in the dollar after FED Chairman Jerome Powell bolstered expectations for U.S. interest rate cuts. Also, a decline in U.S. inventories boosted oil prices.
Brent crude futures edged higher 40 cents at $67.41 a barrel by 0947 GMT. U.S. West Texas Intermediate (WTI) crude futures were up 31 cents, at $60.74 a barrel.
Spot gold XAU= added 1.4% to $1,417.80 an ounce as the dollar fell.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, Investing, CNN money