Dollar Slightly Lower as Powell Suggests Slower Rate Hikes

The dollar index (DXY00) on Wednesday fell by -0.08%.  The dollar Wednesday moved slightly lower on signs the Fed may slow the pace of rate hikes after the FOMC noted it would take cumulative tightening and lags into account in future policy moves.  However, the dollar recovered nearly all of its losses after Fed Chair Powell said we still have "some ways to go" on interest rates and that the ultimate level of the terminal rate may be higher than previously expected.

Wednesday’s U.S. economic news was stronger than expected and bullish for the dollar.  U.S. Oct ADP employment rose +239,000, stronger than expectations of +185,000.

The FOMC, as expected, unanimously raised the federal funds target range by +75 bp to 3.75% to 4.00%. The post-meeting statement said that "ongoing increases" will likely be needed to bring interest rates to a level that is "sufficiently restrictive to return inflation to 2% over time."  The FOMC also said that "in determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

Fed Chair Powell said we still have "some ways to go" on interest rates and that the ultimate level of the terminal rate may be higher than previously expected.  He added that financial conditions had tightened quite a bit, and the time to slow the pace of interest rate hikes may come as soon as the December FOMC meeting.

EUR/USD (^EURUSD) on Wednesday gave up an early advance and fell by -0.31%.  The euro was under pressure Wednesday on economic concerns after the Eurozone Oct S&P Global manufacturing PMI was revised downward to its steepest pace of contraction in 2-1/2 years.  Also, weaker-than-expected German trade news for September weighed on EUR/USD.

The Eurozone Oct S&P Global manufacturing PMI was revised downward by -0.2 to a 2-1/2 year low of 46.4 from the previously reported 46.6.

German Sep exports unexpectedly fell -0.5% m/m, weaker than expectations of +0.5% m/m.  German Sep imports fell -2.3% m/m, weaker than expectations of -0.6% m/m and the biggest decline in eight months.

USD/JPY (^USDJPY) on Wednesday fell by -0.34%.  The yen posted moderate gains on dollar weakness and on comments from BOJ Governor Kuroda, who said Japan’s economy is no longer in deflation since the BOJ started its current easing program.

December gold (GCZ2) on Wednesday closed up +0.30 (+0.02%), and December silver (SIZ22) closed down -0.073 (-0.37%).  Precious metals prices Wednesday settled mixed.  A weaker dollar Wednesday was supportive for metals.   Metals prices were subdued after the FOMC raised interest rates by +75 bp, as expected. Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Tuesday.

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