The Dollar Gears up for Powell Performance

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New Chair of the US Federal Reserve will lay out his vision for American monetary policy in an appearance before lawmakers which should provide currency markets with a firm steer ahead of the new month.

The new chair of the Federal Reserve Jerome Powell will appears before US congress on Tuesday and Thursday when he testifies on the economy and Federal Reserve policy before congressional committees.

Will Powell will continue to indicate three rate hikes are coming in 2018? Powell will appear before the House Financial Services Committee today at 15.00 GMT and deliver his first monetary policy testimony. His prepared remarks will be released 13.30 GMT.

Market commentators are touting the appearance as the 'event of the week' from a Dollar perspective as it is the first time the new Chair steers monetary policy expectations. While Powell has different political leanings to his predecessor Janet Yellen (he a Republican; she a life-long Democrat), he has always been characterised as the 'continuity candidate' for the job and is therefore unlikely to spring any significant surprises.

And of course herein lies the danger - currencies move when expectations are dashed.

"Market participants will be scrutinising his comments closely to stress test the current consensus view that his appointment is not expected to result in a marked policy shift. The latest comments from Fed officials have continued to support plans for a gradual tightening of monetary policy," says Lee Hardman, a currency analyst with MUFG.

Powell is expected to reiterate a commitment to three 0.25% interest rate hikes in 2018, in line with both the market and the Fed's own existing predictions.

Should Powell stoke expectations for more four or more rates in 2018 there is a good chance the Dollar will recover some of the ground it has abandoned over recent months as it tends to find support on expectations for higher US interest rates.

Ahead of the event there is a clear consensus in favour of the status quo being maintained.

"It’s my view that while he may be optimistic about the economy, he probably will stick to the current playbook and won’t give any hints that four rate hikes are likely this year instead of the three that the FOMC has already penciled in," says Marshall Gittler with ACLS Global.

In their semi-annual report to Congress the Fed recently judged that the labour market is now near or a little beyond full employment, but noted that even in industries where hiring has slowed because workers are harder to find, such as in transportation and hospitality, wage growth has remained steady or slowed. "In these circumstances, it would be surprising if new Fed Chair Powell delivered a more hawkish policy signal in the testimony," says Hardman.

Clearly, given the preponderence of views that Powell will adopt an orthodox line similar to his predecessor, the potential for volatility now lies in him deviating, and there may be a risk that anything he says which is different will have an undue impact on the US Dollar.

Powell begins with the release of his prepared testimony at 8:30 AM EST followed by his appearance before the House Financial Services Committee starting at 10 AM. Thursday sees Powell answer questions from the Senate Banking Committee, starting at 10 AM.

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