Despite the growth on Friday, the dollar index (DXY) fell by the end of the week, reaching 103.17. It seems that the statements made by US Federal Reserve Chairman Jerome Powell last week did not impress the market participants, who were betting on the further growth of the dollar.
During his speech at the Wall Street Journal's Future of Everything Festival on Tuesday, Powell said that the Fed "has both the tools and the resolve to get inflation under control." He confirmed that the Fed leadership intends to raise interest rates by 0.50% at the next two meetings. "What we need to see is inflation coming down in a clear and convincing way, and we're going to keep pushing until we see that," Powell said.
The market reacted rather reservedly to these statements, and, as we can see, the dollar weakened by the end of the week. Although at a slower pace, inflation continues to rise. Obviously, market participants expected more aggressive statements from Powell.
At the same time, Powell pointed out that avoiding a recession in the United States will not be easy, and the restoration of price stability "may be associated with painful moments."
"It is going to be a challenging task, and it's been made more challenging in the last couple of months because of global events... It's challenging because unemployment is very low already and because inflation is very high," Powell said.
Thus, there is a contradictory picture on the market. The dollar weakened as US stock indexes fell. Usually, there is an inverse correlation in their movements.
But, on the other hand, the fall in the stock market and the weakening of the dollar encouraged gold buyers.
Futures for this precious metal rose in price, reaching $1842.10 per troy ounce at the end of the trading day on Friday.
As you know, gold does not bring investment income and is mainly used by investors as a tool for hedging risks (inflationary, geopolitical, economic). At the same time, its quotes are extremely sensitive to changes in the monetary policy of the world's largest central banks, primarily the Fed. When interest rates rise, gold prices tend to decline as the cost of purchasing and holding it rises.
Of the publications and events planned for the beginning of the coming week, during which the International Economic Forum will be held in Davos (Switzerland), it is worth highlighting the publication on Tuesday of the PMI indices for Germany (07:30 GMT), the eurozone (08:00 GMT), UK (08:30 GMT), and USA (13:45 and 14:00 GMT). And on Wednesday, the decision of the RBNZ on the interest rate (02:00 GMT), the report of the US Census Bureau with statistics on the volume of orders for durable goods use, implying large investments (12:30 GMT), and the minutes from the May meeting of the Federal Open Market Committee (18:00 GMT).
The publication of the FOMC minutes is extremely important for determining the course of the current policy of the Fed and the prospects for raising interest rates in the US. The volatility of trading in financial markets during the publication of the protocol usually increases, since the text of the minutes often contains either changes or clarifying details regarding the results of the last meeting. Economists and market participants are now assessing how effective the Fed will be in dealing with inflation, which has reached its highs in the past 40 years.
The mild tone of the protocol will have a positive impact on stock indices and gold quotes and negatively on the US dollar. Tough rhetoric from Fed officials regarding the prospects for monetary policy will push the dollar to further growth.