The dollar welcomes Powell’s decision to stay on

The dollar welcomes Powell’s decision to stay on

·         The Fed is more likely to raise rates than to cut them.

·         Market prices 2–3 hikes from the ECB and the BoE this year.

The US dollar has received positive news from the Fed, the oil market and the US economy. Jerome Powell remains on the FOMC, Brent crude has surpassed $120 per barrel, and orders for durable goods (excluding aircraft and military equipment) jumped by 3.3% in March. This was the best reading for the leading indicator in the last six years.

Jerome Powell believes that the US labour market is stabilising, whilst inflation is set to accelerate due to the conflict in the Middle East. This combination provides a strong case for a rate hike. The futures market has raised the odds of such an outcome in 2026 from zero to 14.5%. The probability of policy easing, by contrast, has fallen from 20% to 3%, playing into the hands of EURUSD bears.

As has Jerome Powell’s decision to remain on the FOMC. He is prepared to defend the Fed’s independence, which has been threatened by the White House, undermining investor confidence in the US dollar and contributing to its decline. The task facing Kevin Warsh, recently appointed by Congress to reform the Federal Reserve, is becoming more complicated.

Donald Trump, who openly dislikes Powell, has stated that the former Fed chair will simply be unable to find another job. Stephen Bessent has argued that Powell himself is breaking the unwritten rules that have been in place for decades, as none of the former Fed chairs has remained on the FOMC over the past 75 years.

Investors’ attention is shifting to the ECB and the Bank of England meetings. The European Central Bank intends to keep the deposit rate at 2%, whilst markets will be closely watching for signals from Christine Lagarde regarding future changes. Bloomberg experts forecast one monetary tightening move in June. The money market anticipates two steps towards monetary tightening in 2026.

The Bank of England is also expected to keep the repo rate at 3.75%. The chances of a change are estimated at a modest 10%. It is expected that the overwhelming majority of MPC members will vote for stability. At the same time, the forward market has priced in expectations of three rate hikes in 2026 due to the potential acceleration of UK inflation to 5%.

By the FxPro Analyst Team