The speech of the Fed Chair in the US Congress helped stabilize the sentiment after Tuesday's inflation shock. The dollar made another turnaround, with the EUR/USD pair defending 1.18.
The dollar's exchange rate reversed - the rally of the US currency was once again interrupted when the EUR/USD tested the barrier of 1.18. The first move was made to build a local peak in the dollar's value, but the risk of its further strengthening is still significant. The franc and the Japanese yen, which are typical defensive currencies this month, are leading the G-10 basket.
Jerome Powell interrupts the dollar's rally
The first day of Jerome Powell's speech in Congress brought a breather for the zloty and erased Tuesday's rally in the dollar. The Fed Chair has stuck to his mantra of assessing price processes and the prospects for monetary policy - the message is virtually identical to that from the previous FOMC meeting. This may suggest that the fastest employment growth this year and the recent inflation shock are not enough for the Federal Reserve to change its stance.
Powell stressed that a limited number of product and service categories, including used vehicles, airline tickets, and hotel rates, are primarily responsible for rising prices. In other words, he still sticks to the view that post-pandemic disruptions and bottlenecks in supply chains, i.e. mainly supply-side factors, are responsible for strong inflation. With their gradual phasing out, inflationary pressures are also expected to weaken, but it is stressed that price dynamics will remain strong in the near term.
The Fed will be ready to intervene if inflation expectations are dangerously elevated, but there is definitely no need to do so for now. The progress of economic recovery after the lifting of restrictions was also referred to: it is still insufficient to guarantee the early withdrawal of the crisis policy. In brief: the Fed Chair did not use the report in the House of Representatives to signal a continuation in the turnaround of the stance and to show signs of concern that inflation may be out of control.