Powell disappoints hawks, stocks rally, dollar drops
There was some mild activity in the markets this afternoon following the announcement from Fed chief Jerome Powell. It was a not so exciting end to a quiet week, and many traders sat on their hands in anticipation of Powell’s speech at the virtual Jackson Hole Symposium. Going into the update, there was a lot of speculation that this would be the moment the central banker would give a clear signal that tapering of the bond buying scheme would kick off in the next few months. Even though it was announced that policymakers believe it would be appropriate to start tapering the stimulus scheme this year, the tone of the update wasn’t as hawkish as many were expecting. The result was a reasonably large decline in the US dollar, and the S&P 500 has been pushed to yet another record high.
Just because Jay Powell didn’t map out a clear plan to start tapering doesn’t mean that he will keep the existing programme in place forever. It was acknowledged that jobs growth continues but at the same time the Covid-19 crisis muddies the water with respect to the outlook. The Fed boss is clearly worried about sparking a ‘taper tantrum’, like what was seen in 2013, as he said it would be detrimental to prematurely tighten the policy. The fact that no concise start date for tapering was laid out, and that Powell said the labour market still has some way to go to hit full employment, suggests the Fed are not in any rush to alter their policy.
Equity bulls took that as a sign it is time to resume their buying policy, and that lifted the FTSE 100, the DAX, and the NASDAQ 100. Seeing as it seems the Fed will not be changing their stance in the near-term, that put pressure on the greenback, keep in mind the currency hit a nine-month high last week. EUR/USD and GBP/USD are up 0.4% and 0.5% respectively. USD/CAD is down over 0.5%, partially because of the weaker dollar, but also because oil hit a two-week high – on account of hurricane fears in the Gulf of Mexico.
Gold has retaken the $1,800 mark thanks to the slide in the US dollar. The metal has been trading higher for three weeks and if the uptrend continues it might target the $1,830 mark.