The new Federal Reserve Chair Jerome Powell has just delivered his first semiannual monetary policy report to the U.S. Congress. Markets have been quite quiet all week awaiting his delivered text and testimony which began just a few minutes ago, as at the time of writing. The textual deposition was a careful balance between optimism and awareness and was obviously well-worded so as not to put any kind of hitch in the bull market, claiming that inflation was effectively under control and not something to be overly worried about right now. The market’s only immediate reaction to the prepared text was to boost the U.S. Dollar by just a little, but the move is well within the range of normal market movement.
The oral testimony before Congress was more interesting, as it usually is. Powell played down the volatile stock market swings which occurred at the start of this month, saying he paid little attention to them, and he implied that interest rates would continue to increase gradually via “further gradual increases” – in other words, no change to existing consensus expectations of the Fed’s path of tightening monetary policy. Powell also stated that economic growth was strong and U.S. exports growing. Attention will now turn towards tomorrow’s Preliminary GDP data, which is expected to come in at a 2.5% increase.
There is little else on the agenda this week except the U.K., where Brexit is keeping the GBP/USD volatile, and the pair continues to trade with the highest average daily range of any major currency pair. The opposition Labour Party has announced a major policy change in seeking to place the U.K. within a customs union with the European Union, effectively devolving the terms of British trade to a foreign entity. There are many MPs within the Conservative Party who would back such a policy, and they may be tempted to rebel against their own government to vote for it.