Daily market commentary: The US dollar gains ground, following a speech by the chairman of the Fed


The US dollar gained ground on other major currencies, following a speech by the chairman of the Fed late on Monday. Jerome Powell stressed the central bank’s resolve to tackle inflationary risks, demonstrating the willingness to, if necessary, accelerate the pace of the ongoing monetary policy tightening. This stance contrasts with that of other central banks, with the Bank of Japan’s governor saying earlier today that the ongoing level of stimulus remains appropriate, while Christine Lagarde, the president of the ECB, mentioned the impact of the war in Ukraine on the continent’s economy, highlighting the fact that the ECB and the FED are at different stages in the tightening cycle. Against this scenario, further strengthening of the dollar against the euro and the yen will not surprise.

Ricardo Evangelista – Senior Analyst, ActivTrades


Gold prices hedged down during early Tuesday trading, due to the precious metal’s inverted correlation with the US dollar. The greenback strengthened as the 10-year treasury yields reached 2.3% for the first time since 2019, after the Fed’s chairman, Jerome Powell, surprised observers by demonstrating an aggressive stance in relation to the need to control inflation, stating that the central bank will act as necessary and increase rates by 25 basis points or even more, as many times as required. However, the downside created by the strength of the dollar is limited by concerns over the ongoing conflict in Ukraine, with US intelligence reporting the possibility of an escalation that may involve the use of chemical weapons by Russia; Gold prices tend to increase when the geopolitical temperature rises, so any losses remain limited by the ongoing war in Eastern Europe.

Ricardo Evangelista – Senior Analyst, ActivTrades

European Shares

European indices climbed significantly higher, with benchmarks from Stockholm to Lisbon +1% higher shortly after the opening bell, as the “risk-on” mood continues.

Investors’ appetite for riskier assets has been given another fresh boost following Jerome Powell’s hawkish wording yesterday evening, as many traders welcomed the Fed’s strong will to combat inflation. However, on the other hand, flattening yield curves suggesting rising concerns of an economic slowdown to come in the longer run, associated with the lack of any clear breakthrough in Ukraine-Russia diplomatic talks in the short-term, could be seen as a sign market volatility and large swings in prices may not be over yet. That said, investors are likely to be provided with more clues this week as BoE governor Bailey and ECB president Lagarde are expected to speak before the BIS Innovation Summit today and tomorrow, while an emergency NATO summit looms on Thursday.

Pierre Veyret– Technical analyst, ActivTrades

Disclaimer: opinions are personal to the authors and do not reflect the opinions of LeapRate. This is not a trading advice.

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