U.S. Markets

Dollar higher after Powell deflects trade concerns

NEW YORK (Reuters) - The dollar rose on Tuesday as Federal Reserve Chairman Jerome Powell provided an upbeat assessment on the U.S. economy while downplaying the impact of current global trade policy discussions on the outlook for further monetary tightening.

FILE PHOTO: Bundles of banknotes of U.S. Dollar are pictured at a currency exchange shop in Ciudad Juarez, Mexico January 15, 2018. REUTERS/Jose Luis Gonzalez/File Photo

Following Powell’s remarks, the dollar rose to a six-month high against the yen.

Investors were watching Powell’s comments on global trade for any hint that it may slow the pace of interest rate increases. When Powell did not dwell on global trade, analysts said that was a green light to buy U.S. dollars.

In his testimony before the Senate Banking Committee, Powell said the economy is on track for years of steady growth, though congress challenged the rosy outlook on concerns that the recently imposed tariffs would put a dent in growth.

“He basically completely dismissed any concerns about a trade tariff war,” said Boris Schlossberg, director of FX strategy at BK Asset Management in New York.

The Fed chairman’s optimistic view left room for a fourth rate increase this year, Schlossberg said. “Chairman Powell’s modus operandi seems to be to provide as much operating leverage as he can have for himself.”

In afternoon trading, the dollar rose 0.46 percent at 94.945 .DXY against a basket of six major currencies. The dollar hit a 12-month high of 95.53 in late June and has rallied more than 5 percent in the past three months.

Against the yen, the dollar hit its highest level since January, trading up 0.49 percent at 112.83 yen JPY=.


The dollar’s gains this year have been capped by worries over the intensifying trade dispute between the United States and China, though the concerns have not derailed the greenback’s solid performance so far.

The International Monetary Fund warned on Monday that escalating and sustained trade conflicts after U.S. tariff action threaten to derail economic recovery and depress medium-term growth prospects.

Analysts are uncertain how the Fed would react if the trade conflict with China worsens - either with aggressive rate increases because of the inflationary effect of the import tariffs or with a pause in the cycle because of growth dampening.

Other major currencies traded in narrow ranges on Tuesday.

The euro declined 0.4 percent against the dollar to $1.1661 after weakening half a percent last week.

The pound fell 0.88 percent against the dollar at $1.3117, bouncing back from a low of $1.3106 after Prime Minister Theresa May narrowly cleared the latest parliamentary hurdle over Brexit plans.

Most Latin American currencies weakened following Powell’s remarks as investors unwound bets on a slower pace of U.S. interest rate hikes.

Reporting by James Thorne; Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler and Leslie Adler