Dollar lets out doves

EUR/USD is up to three-month highs as Jerome Powell is expected to sound dovish
The best is the enemy of good. The Fed is in a difficult situation after the publication of the US jobs report for May. The drop in the unemployment rate and the biggest surge in employment since the end of World War Two suggest the V-shaped recovery of the US economy, which is expected by the White House. The Fed was opposing this idea until recently. According to Jerome Powell, it will take a long time until the US GDP is back to the pre-crisis growth pace. This should require an extra fiscal stimulus. Strong domestic data allow the US central bank to sound more optimistic than it did before. However, optimism could drop the US stock market.

Powell has some negative experiences. In late 2018, his announcement that the current interest rates were far from being neutral started sell-offs of the S&P 500. The Fed’s chair must be extremely careful. Ahead of the publication of the FOMC June meeting’s outcomes, markets expect Powell to sound dovish. That is why the EUR/USD has rebounded up from the support at 1.124-1.1245 I suggested earlier and increased by an entire figure. Investors expect the Fed to express the willingness to hold the interest rates low for some years and signal the Treasury yields targeting policy. Both factors are bearish for the US dollar, which is also weighed on by the seasonal factor. In June, the USD index fell in eight cases out of the past ten by 0.7% on average.

Dynamics of Bloomberg USD index

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