The euro slumped on Tuesday during Federal Reserve Chair Jerome Powellâs semi-annual testimony on Capitol Hill. As Powell told the US Senate Banking Committee that continued, gradual increases to interest rates will be the desired monetary policy moving forward, the euro fell against the US dollar, adding to its steep year-to-date losses.
Powell, who will be speaking before the House Financial Services Committee on Wednesday, delivered an upbeat tone about the US economy. He signaled gradual tightening, leaving the door open for both faster and slower-paced rate hikes heading into 2019, depending on economic data and financial activities.
The Fed head told policymakers:
With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that â for now â the best way forward is to keep gradually raising the federal funds rate. We are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses. On the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective.
Powell did warn that the trade war, should it result in higher tariffs, âwould be bad for our economy,â adding that trade spats between the US and China âhave no precedence in my adult life.â Powell noted that it is hard to forecast the outcome of the present negotiations regarding trade policy and how it would affect recent modifications to fiscal policy.
Throughout his Senate testimony, the US Dollar Index surged 0.51% to 95.01, a three-week high. Many analysts have been stumped by trade tensions not impacting the greenback, which has risen more than 6% over the last three months.
In recent months, the US, China, Canada, and the European Union (EU) have been engaging in tit-for-tat tariff retaliation. As the US slaps levies on steel and aluminum, the other three jurisdictions are primarily targeting US agriculture, sending many commodities tumbling.
The market is also weighing the fallout over President Donald Trumpâs historic meeting with Russian President Vladimir Putin in Helsinki on Monday. The event, which has the world buzzing, is expected to weigh on international markets for the remainder of the week.
As expected Powellâs remarks introduced volatility to the EUR/USD currency pair. The EUR/USD opened at 1.1713, but the currency pair slipped 0.50% to 1.1652 at 18:30 GMT on Tuesday. The EUR/CAD dipped 0.04% to 1.5390 after opening at 1.5383. The EUR/CNY dropped 0.16% from 7.8356 to 7.8231.
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