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The Impact of Jerome Powell’s
Speech on US Dollar (USD)

Chair of the Federal Reserve, Jerome Powell, has made some notable comments over recent weeks regarding monetary policy and unemployment in the United States. However, Mr Powell is also set to speak in Congress twice this week for the semi-annual testimony which is likely to impact the US dollar (USD) further.

Mr Powell recently commented on the US unemployment rate, which was reported at the time as 6.3% by the Bureau of Labour Statistics. However, the Fed Chair stated that realistically, the figure was closer to 10% and declared that the US labour market is far from where it needs to be, echoing comments made at the Jackson Hole Symposium last August.

It was noted that the US’ unemployment crisis could not be solved by monetary policy alone.

Mr Powell stated that “given the number of people who have lost their jobs and the likelihood that some will struggle to find work in the post-pandemic economy, achieving and sustaining maximum employment will require more than supportive monetary policy. It will require a society-wide commitment, with contributions from across government and the private sector”.

Later today will see Jerome Powell speak before congress to present the semi-annual monetary policy report and US dollar (USD) investors are cautious about what could be said, including a potentially tighter stance.

US Dollars

Jerome Powell’s monetary policy speech

US dollar (USD) investors are bracing themselves for Jerome Powell’s semi-annual monetary policy speech both today and tomorrow and what impacts this could have on the Greenback.

Current concerns are in relation to rising bond yields as well as inflation fears, which are encouraging investors to pay greater attention to today’s and tomorrow’s hearings.

Michelle Meyer, Bank of America economist, stated ““Powell will likely note recent progress in the data but reiterate that the economy is far from fully recovered, thereby defending accommodative monetary policy”.

The Fed have previously stated that they will aim to keep inflation low at around 2%, though recent comments suggest that they are uncertain as to how much inflation the US economy can handle.

Meyer went on to add “there is a delicate balance; strong growth could prompt a faster rise in rates, driving up borrowing costs and weighing on risky assets, limiting upside economic growth.”

Back in August, Mr Powell stated during his speech at the Jackson Hole Symposium that US monetary policy needed a ‘robust updating’, vowing to focus on targeting average inflation and supporting low-income communities.

The critical elements that were highlighted in understanding the updated monetary policy stance were as follows:

  • Long-run growth rate assessments had deteriorated.
  • Dwindling worldwide interest rates.
  • The best labour market developed following the crisis.
  • The labour market did not activate severe inflation, despite reports to the contrary.

Powell reiterated that a sturdier labour market would be a key priority for the central bank over price stability. As unemployment continues to be a primary concern for the US, it is thought that there would not be any dramatic changes to US monetary policy mentioned today or tomorrow, though this remains to be seen.

Biden stimulus could face delays

In a bid to support US citizens during the unemployment crisis amid COVID-19, US President, Joe Biden, announced a USD 1.9 trillion coronavirus stimulus package shortly after his inauguration. The bill, which is currently being reviewed in congress, has faced Republican criticism over the individual USD 1,400 cheques potentially being sent to families with undocumented immigrants. Some are also concerned that any additional financial support may encourage individuals to stay out of work for longer.

Despite criticism, the stimulus bill is set to be approved before 14th March, in which case cheques could be received by taxpayers from 29th March. Unemployed US citizens will be hoping to receive cheques as soon as possible given that US jobless benefits will expire on 11th April.

Data indicates that over 11 million Americans have relied on the current unemployment benefits, as it’s revealed that another 861,000 more people filed for unemployment benefits last week.

US dollar progress ahead of Powell’s speech

The US dollar (USD) has been sliding against some of its major currency competitors over the past week, including the British pound (GBP) and euro (EUR). The British pound to US dollar (GBP/USD) exchange rate has reached its best level in three years, hitting USD 1.41 this week. Whilst coronavirus infections in the US have been falling, this week a shadow was cast over the US dollar (USD) as it was stated that there have been over 500,000 coronavirus related deaths so far during the pandemic.

The euro (EUR) has also edged higher against the US dollar (USD) despite the Eurozone’s slow vaccination rollout. Today the euro to US dollar (EUR/USD) exchange rate stands at USD 1.21.

The progress of the US dollar (USD) looks to be very much dependent on the speed at which President Biden’s stimulus bill can be passed and today’s awaited comments from Jerome Powell.

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