Pound-Dollar: Powell Interview Key to Near-term Outlook

Above: File image of Jerome Powell. Source: Federal Reserve.

• GBP/USD spot at publication: 1.3930
• Bank transfer rates (indicative guide): 1.3540-1.3640
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The U.S. Federal Reserve Chairman Jerome Powell is to sit down with the Wall Street Journal for an interview today and what he says could well dicatate market direction for the next two weeks.

Typically, such an interview would be of passing interest.

But not so today: this is Powell's final chance to address the surge in U.S. bond yields that have hit equity markets and seen the Dollar rise.

The interview is pencilled in to begin at around 19:05 GMT.

This will be the final opportunity for the Fed to send a message to the market as members of the Federal Reserve Open Markets Committee (FOMC) go into a two-week communication blackout this weekend, as is typical ahead of every FOMC meeting.

Therefore the market will be expecting some strong guidance on what the Fed intends to do in order to address the rising yields on ten-year bonds that have been such a source of anxiety for investors.

"Will Powell show concern over the Treasury sell-off?" asks Francesco Pesole, foreign exchange strategist at ING Bank. "Bond markets continue to drive the global investment environment, including risk-taking in FX markets."

Global equity markets have been following the decline in the leading U.S. indices since about the 25th of February.

The Dollar has meanwhile found itself better bid and is the best performing major currency of the past week.

This is reflected in the Pound-to-Dollar exchange rate which has fallen below 1.40 once more, having been as high as 1.42 towards the end of February.

The UK currency is broadly firmer against most other currencies, but U.S. Dollar strength is proving hard to overcome.

Therefore, Powell's comments could open the door to higher levels in GBP/USD provided he hints at plans aimed at quelling the rise in yields on U.S. ten-year bonds.

There were rumours on various financial market channels that the Fed might enact an 'operation twist', whereby it starts to move away from targeting its bond buying programme at short-dated bonds towards longer-dated bonds.

"The tone of this Q&A could well set the risk tone for the next two weeks. Comments that he’s monitoring events in the Treasury market might be enough to calm things down, encourage a return to high yield FX and a softer dollar but no such concern would suggest the Fed is happy for US Treasury yields to ‘find the right level’ – as our bond strategy colleagues say – potentially triggering another spike in US yields and more dollar short-covering," says Pesole.

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